Anatomy of a Key Price Zone Trade
From 1990 to 1997, Kevin Haggerty served as Senior Vice President for Equity Trading at Fidelity Capital Markets, Boston, a division of Fidelity Investments. He was responsible for all U.S. institutional Listed, OTC and Option trading in addition to all major Exchange Floor Executions. For a free trial to Kevin’s Daily Trading Report, please click here.
The previous commentary was last Thursday morning when the $SPX futures were down -15 points prior to the 9:30AM opening, which preceded a -2.9% day for the $SPX to close at 1283.15. The next key price zone was 1274-1270, and the $SPX hit 1272 on Friday. Trading service members were able to capitalize on the long side despite the decline, because they had anticipated the key price zone, and recognized the symmetry, which is key for high probability trades.
I included the Trading Service chart for the $SPX from Friday, so you can get an idea of why traders played the reversal setups. The initial $SPX trade was an RST with entry above 1280.71, which ran to 1289.12 before reversing. The second trade was from the anticipated key price zone 1274-1268. The bear market low close for the $SPX so far is 1273.37 on 3/10/08, which was followed by the 1257 low on 3/17/08, where the close was 1276.60. The other symmetry is the 1274 angle (360 Degree) measured from 1576 using the Square of 9 calculation, the 1270 1/23/08 low, in addition to the 1268 .382RT from 1576-769. The reversal bar entry after the 1272 low was above 1273.58, which ran to 1283.89 before fading to the 1278.38 close and end of the second QTR, which does not make the Generals happy.
I had previously said that the $SPX would still close above 1327 for the end of QTR2, and was obviously wrong as crude oil broke out above $140, and the financials were hit with another round of sell recommendations, and more anticipated write-downs, with no indication of when the carnage will end. Also, Lehman Brothers
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PowerRating) has one foot in the grave, and appears to be on the way to visit Bear Stearns. The price of crude oil is now wagging the tail of the equity market more than ever before, and will continue to do so until a significant price decline below $140. The generals and hedge funds are acting like a “herd†in the energy and materials stocks, especially the agricultural chemicals and coal stocks, both of which are in parabolic moves similar to the Tech stocks in the internet bubble, which did not end well in 2000.
The $SPX futures are -14 points as I complete this at 6:50AM EST, but obviously a lot can happen to change that before the “Race†starts at 9:30AM. However, if it doesn’t, and there is a significant discount opening, then that 1274-1268 price symmetry is in play again. The initial -1.0 VB for today is 1264.79, followed by the -1.28 VB at 1260.53, -1.5 VB 1257.19, and -2.0 VB 1249.58 There will be an excellent day trading contra move after any significant early weakness. Keep in mind, the liquidity is thinner going into the holiday weekend starting Friday, so there can be more erratic price movement than normal, which is all positive for the day trader as long as you have a fast trigger finger to manage your trades. It is not about love in this market. The key price zones below 1274-1268 are outlined in the trading service, and you can get them with a free trial to the service
The next commentary will be Tuesday 7/8/08, so I hope all of you have a happy and safe holiday weekend.
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