Energy stocks in primary focus zone
Kevin Haggerty is
the former head of trading for Fidelity Capital Markets. His column is
intended for more advanced traders. Kevin has trained thousands of traders
over the past decade. If you would like to be trained by him,
ext. 1
It has been quite a
ride since the 09/30 longer-term time date measured from October 2002.
The SPX
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in 13 days and suffice to say that is “a real good thing.” The last two days are
a mirror image and the two most profitable SPX daytrading days in succession in
a very long time. Wednesday started with a
Trap Door long entry above 1172.26 after a successful test of the 1168.20
10/13 low. The trade ran to the 1195.75 close, +1.5% (see chart). If you missed
the Trap Door you were given a second opportunity with the
1,2,3 higher bottom long entry above 1173.07. Total volume was 2
billion shares on Wednesday with the volume ratio 73 while breadth was only +994
and new lows had increased. All kinds of hype about why by the media but the
Generals didn’t just wake up and say “all is well.” There was certainly some
short covering as many of the leading gainers were stocks that have declined the
most since the SPX 1246 high and prior to that. Option expiration was also a
factor this week and who knows how much the Plunge Protection Team was involved
due to possible Refco fallout in the derivatives market in addition to the new
hurricane about to hit Florida.
Volatility will revert to the mean and at 1168.20
the SPX was in the -3.0 standard deviation zone, so if there ever was a spot to
squeeze shorts and run the market, that was a good place to start.1163 is the
Wave 3 high and there are some major money managers in the game who like to take
advantage of “oversold and underloved” situations. Large institutions will often
roll down the cost of many core positions, so if they have been selling off, for
example, stocks like Alcoa
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had significant declines since their range highs, they will often come back in
and buy those stocks at lower levels and then put them back out for sale again
as a short to intermediate rally takes hold.
It was an SPX
Trap Door short Thursday after the 9:45 AM signal bar 1197.30 high. Entry
was below 1196.13, which re-crossed the 40-week and 200-day EMAs at the 1196
level. That was major resistance and a no-brainer trade to take after
Wednesday’s 26.75 point SPX advance. The Trap Door was followed by a
1,2,3 lower top to complete the mirror image from Wednesday (see chart). The
SPX finished at 1177.80, -1.5%, the volume ratio 23 and breadth -1531, so there
was no confusion about the negative internals. Total volume was at the 2 billion
share level. Energy led the downside Thursday as the XLE was -4.5%, hitting a
44.94 intraday low, closing at 45.55. The initial support zone is 44.85 – 43.90;
the intraday low was 44.94. Many energy stocks have extended down to a good
focus zone as stocks like the
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are in their -3.0 standard deviation zones based on yesterday’s intraday lows,
but bounced up into the close. Crude oil traded below $60 ($59.32) with the
200-day EMA for the light crude continuous contract ($WTIC ) at $57.47. This
combination makes energy the priority daytrading sector today for potential long
side entries or the beginning of short-term positions.
Have a good trading day.
Kevin Haggerty
