The bet size is determined by your edge
Kevin Haggerty is a full-time professional trader who was
head of trading for Fidelity Capital Markets for seven years. Would you like
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The commodity stocks
imploded yesterday as the Saudis were talking about doubling refining
capacity, China indicated a cut-back in demand for 2006, and natural gas took a
dive. This was enough to send the overweighted holders to the exits to take some
profits in the very extended energy, gold and copper stocks. Talk is cheap, and
after some feel-good selling, the buyers will return. The Middle East unrest will dominate the energy picture for the
foreseeable future, not the feel-good talk we have heard many times from the same Saudis. This selloff had the SPX
-0.8% to 1254.78, taking out the 1259.42 swing point low, which keeps the
short-term downtrend intact. The Dow is -0.5% to 10,750. The QQQQ, lacking
energy weighting, was -0.4%, with the SMH +0.7%.
NYSE volume was 1.77 billion shares, volume ratio
36 and breadth -1184. The 4 MA of these ratios has the SPX into the high end of
a short-term oversold condition. The extent of the energy selloff is
evident by the
(
OIH |
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PowerRating), -5.7%,
(
XLE |
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PowerRating), -4.2% and
(
XAU |
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PowerRating), -7.1%. The
(
TLT |
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PowerRating) was -0.5%. The
(
QQQQ |
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PowerRating) is the most oversold, with the 5 RSI at 20.81, and is this corner’s choice
for the reflex rally this week. My prayer this week is “may the media empty
suits and those who listen to them be protected so daytraders can continue to
flourish because of the instant volatility they create.” Of course, we can’t
forget the multitude of hedge funds that have sprung up with this bull cycle and
reduction in Wall Street. They are in fierce competition for money and
performance so they will try to force price action when they think they have an
order flow edge, and this of course creates even more volatility for daytraders
to work with.
The whole damn thing is a casino and when you
have an edge on the dealer, you increase your bet size and reduce it when you
don’t. Favor the buy side on early QQQQ weakness, especially below 40.16.
RST players, are you awake?
Have a good trading day,
Kevin Haggerty