A high-probability strategy regardless of market direction
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
The SPX intraday chart
(5-minute) from Friday afternoon through 11:50 AM yesterday is just a V-spike
reversal. The spike went from 1229.89 to 1237.91 on Friday with all
of the programs, etc., and then was a knife-down to 1230.77 by the 11:50 AM bar
yesterday. It went on to make a 1227.65 intraday low and traded up in the last
30 minutes to close at 1231.02, -0.6%. The Dow was -0.8% to 10,558 as was the
QQQQ, to 39.08. The Nasdaq went out at 2144, -0.7%. All of the primary sectors
were red from -1.0% to -1.3% except the XBD, finishing flat with the only green
sector being energy, as the OIH was +3.5% after the gap-up opening.
NYSE volume was 1.55 billion shares, right on its
2005 year-to-date average while the volume ratio was 32 and breadth -1141. Most
traders are not surprised at weakness following rebalancing and triple witch
expiration (quadruple is a myth) so when and if it happens, most traders just
get out of the way and pass on any significant SPX trading that day. The SPX
60-minute chart downtrend has its first intraday zone of interest from 1221 –
1219.60, then 1217.15 – 1216.75. The 1227.65 intraday low yesterday was at the
20-day EMA of 1228.26.
This corner is very pleased with the long
synthetic straddle timing as the volatility swings have already started. The
chance of a significant down-move is clearly present through October, however,
if the major index levels can hold, the Generals will have an opportunity to
mark prices up with resulting new SPX highs and Wave 5 will enter a significant
bull cycle ending measurement zone from 1254 -1305. Either way, it is win-win
for the strategy. There is significant long-term Fibonacci ratio symmetry
through October, so if you get frozen in the headlights on the downside just
look in the mirror for the reason. Longer-term cash index proxy positions have,
as you know from previous commentaries, already been taken off the table and
replaced with longer-term calls so bull cycle profits were booked and the calls
allow for a significant participation on any more upside and a defined premium
risk on the downside. Those calls have been supplemented with synthetic
straddles which can negate any loss of call premium on any significant downside
or upside moves. A prolonged period of low volatility would be a negative
because of time decay.
The business of intraday trading should be very
active from here through year end and only short-term positions will be taken,
such as a potential long into a possible quarter ending mark up
Have a good trading day,
Kevin Haggerty