Traders should react, not initiate

Kevin Haggerty is a full-time professional trader who was head of trading for Fidelity Capital Markets for seven years. Would you like Kevin to alert you of opportunities in stocks, the SPYs, QQQQs (and more) for the next day's trading? Click here for a free one-week trial to Kevin Haggerty's Professional Trading Service or call 888-484-8220 ext. 1.

The SPX finished flat at 1367.21, down less than a point, and has pulled back 5 days from last Thursday's 1389.45 high. $INDU remains over 12,000, closing at 12,019 (-0.1%) after making a 11,979 intraday low. For traders, both the SPY and DIA closed right on their 20-dema after the 5-day pullback. The SPY closed at 136.78 vs the 136.61 10-dema and the DIA closed at 120 vs 119.79. The 5-RSI for both are at the top of the short-term oversold zone. The generals have no incentives to markup stocks into the election, but we don't know what the PRESIDENT'S WORKING GROUP ON FINANCIAL MARKETS has in mind. This is the PPT (Plunge Protection Team), run by the Treasury Secretary (Hank Paulson). There are 4 economic reports today, including the ISM, non-manufacturing index, unemployment rate and non-farm payrolls. I don't expect any negative surprises before Tuesday's elections, do you? The short-term technicals are favorable for another one of the those "mystery" futures-induced bounces in front of the election on Tuesday.

The SPX had a 6.2 point daily range yesterday, and traders didn't have much to work with. But that was not the case in the energy sector. There were very profitable RST long setups in the OIH and component stocks like SLB and RIG, to name a few. Traders should focus today on ATL stocks (above the line) that have similar pullback patterns as the SPY and DIA, in case "they" try to boost the SPX and $INDU one more time. The generals have been selling the healthcare, drugs and defense stocks, probably anticipating the Democrats winning one or both of the houses. The utility stocks remain strong, and the TLT was +4.4% for the previous 6 days before yesterday's -0.4% pullback. The bond market continues to signal significant slowdown. The semis look ugly, as the SMH made new lows, closing at 33.05 yesterday. The next potential reversal zones are 32.50 and 31.75.

Traders should remain in a reactive mode through the election until we see how it plays out. It can define the institutional reaction. The commodity sectors have picked up again, and that is not a good sign, seeing that the Fed is caught between a rock and a hard place with the inverted curve and an extremely weak housing market. If the commodity sectors accelerate with growth slowing, and the Fed has to raise interest rates, forget about the equity markets until the next 4 year bear cycle low hits.

Have a good trading day,
Kevin Haggerty

Check out Kevin's strategies and more in the 1st Hour Reversals Module, Sequence Trading Module, Trading With The Generals 2004 and the 1-2-3 Trading Module.