Reversal opportunities in the energy sector
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?
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The SPX and $INDU maintained their new high levels Friday,
with the SPX closing at 1349.89 (-0.2) and the $INDU 11,850 (-0.1). The
early weakness in the major indexes set up the trap doors and RST trades, which
had symmetry with the -1.0 VB. However, the energy sector also provided
the same setups, and they made more significant moves because of the higher
volatility. The trap door and VB strategies are explained in the
1st Hour Reversal Module, and all my trading strategies are in the
Sequence Trading Module and
Trading With The Generals IV Module.
NYSE volume was 1.57 billion shares, and there was a negative
divergence in the internals Friday relative to the SPX/$INDU closing prices, as
the volume ratio was just 34 and breadth -864. The economic news last week
was weak, and the biggest risk continues to be recession of some degree, which
no pundit or economist has ever been able to predict with any degree of
reliability, especially at the 2000 bull market top.
There are many obvious red alerts beyond the sinking housing
market. The leading indicators have declined for 7 months in succession,
and every time there has been a 6-month decline, there has been a recession 70%
of the time. Another significant recession indicator is the current
yield-curve inversion, which has occurred less than 10 times since the early
50’s, and a recession has followed 80% of the time. Currently, the 10-year
Treasury note/13-week T-bill rate is 0.95, and if divided by the Federal funds
rate, is 0.87. Below 1.00 is a recession red alert. It is safe to
say that the highest probability is a recession of some sort, and there might
also be some stagflation if the current inflation indicators don’t subside.
For buy and hold investors, the money market has been the best
performer since the 2000 bull market top, and as of Friday, that is 2,387
calendar days (6.54 years). It is obviously different for aggressive
investors who are able to use some timing. I can attest to that first
hand. There were negative SPX returns for the 17.2 year cycle from
1965-1982, and from this corner, that meant 42 years old with no buy-and-hold
SPX related gains. The next 17.2 year cycle, from 1982-2000 was a period
of low inflation and high growth, and the returns were excellent. But
after 42, how aggressive do you think you would be, after making no buy-and-hold
gains since you graduated from college through age 42. Those investors
that only know the 1982-2000 17.2 year economic period are still in la-la land
and having a very difficult time adjusting. FYI: We are 6.5 years into
this current 17.2 year economic cycle, and there has been never been two of
these cycles in succession with low inflation and high growth. That means,
currently, it is either low growth/high inflation or high growth/high inflation,
neither of which results in long-trending bull markets. However, there
will be ample bull and bear cycles within the 17.2 year cycle for good
aggressive timers who take advantage of it.
It certainly appears they are trying to push the SPX and $INDU
through the mid-term elections, and a decline in crude oil has helped.
Crude oil is extremely oversold historically, so is that because the economy
worldwide is slowing down, or is the “fix” in at the casino? We will find
out soon, and in the meantime, traders will continue to profit in the energy
sector because of the volatility, especially because of the trap door, VB, and
RST strategies.
Have a good trading day,
Kevin Haggerty