Look For Trap Doors And Volatility Band Situations

  • August 10, 2005
  • Kevin Haggerty


Kevin Haggerty is the former head of trading for
Fidelity Capital Markets. His column is intended for more advanced traders. If
you would like to learn how Kevin trades,

you can find more information here.

The market came into Tuesday having just hit the

short-term oversold zone relative to the volume ratio, breadth and five-day RSI.

The
(
TLT |
Quote |
Chart |
News |
PowerRating) was green early yesterday with crude oil soft, and there was a

gap-up opening for the major indices. At day’s end, the SPX
(
SPX |
Quote |
Chart |
News |
PowerRating) closed at

1231.38, +0.7%, with the TLT +0.4% and crude oil -1.4% to 63.07. The TLT was

oversold coming into today and crude oil was overbought. The Dollar was flat

(87.89), as was gold (437.60).

The SPX went sideways after the gap opening,

which took daytraders out of the game until the artificial jiggle up at 2:15

p.m. ET on Greenspan’s expected rate hike. The SPX went from a 1230.48 low on

the 2:15 p.m. bar to 1234.11 on the 2:30 p.m. bar. This was good for daytraders

because it set up an RST short entry below SPX 1232.92 which declined to 1227.65

before the first change-of-direction bar making you cover taking out no less

than 4 points (see chart). The Dow, 10,616, and
(
QQQQ |
Quote |
Chart |
News |
PowerRating), 39.45, were also

+0.7%, with the Nasdaq
(
COMPQ |
Quote |
Chart |
News |
PowerRating) +0.4% to 2174. NYSE volume expanded to 1.45

billion shares with a volume ratio of 70 (one billion shares up), but breadth

was weak at just +514 relative to the +0.7% major index gains. The drugs led the

sectors, with the PPH +1.6%, RTH +1.1%, XBD +1.3% and
(
SMH |
Quote |
Chart |
News |
PowerRating) +0.9%.

If the early futures hold up, it will be a bigger

opening gap up than yesterday. As of 7:00 a.m. ET, the S&Ps are +5.50, Dow +50

and Nasdaq +4.5. This will mean an artificially inflated 9:30 a.m. New York

opening once again, and daytraders will look to Trap Doors and volatility band

situations as the first trading action of the day.

Have a good trading day,

Kevin Haggerty