1st Hour RST Reversal Strategy

March 11, 2008
Kevin Haggerty

Kevin Haggerty is a full-time professional trader who was head of trading for Fidelity Capital Markets for seven years. Would you like Kevin to alert you of opportunities in
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The $SPX was -1.6% yesterday to make it 3 straight down days and -4.6%. It failed to take out the 1/23/08 1270.05 low as it hit 1272.66 before closing at 1273.37 The QQQQ, $COMPX, IWM and XLF have all taken out their Jan 08′ lows, and their % declines for this bear market so far are -25.3%, -24.2%, -24.8%, and the XLF -37.5%. The $SPX is -19.4% from the 1576 10/11/07 high to the 1270.05 1/23/08 low, and will trade lower before this bear cycle is over. The market is obviously oversold as the major indexes are extended to their -2.0 STDV bands and then some on a one year basis, while the 6-day moving averages of the volume ratio (ADV VOL/ADV VOL + DEC VOL) and breadth, are 30 and and -995. The regular 4MA’s are 28 and -1209, so either way a short term bounce is anticipated. Today is a longer term time date measured from the 769 10/10/02 bear market low, so it could be a catalyst.

The derivative meltdown and credit crisis continues to expand as several hedge funds were forced to shut down because of increased margin calls by the banks, and the lack of any liquidity in the market to sell their structured securities to meet these margin calls. This will get worse short term not better, unless there is some grand solution that we certainly don’t see yet.

The energy and commodity stocks have sold off the last 7 days following the Feb month end mark up as the Generals and Hedge funds take some money off the table in the only profitable sectors. The XME is -13.7%, OIH -8.6% and XLE -7.9% for this period. There were excellent 1st Hour Reversals in all 3 yesterday, including most of their component stocks, which were also on the trading focus list for yesterday. These sectors continue to be the most profitable for daytraders because of the intraday volatility, but you have to be familiar with strategies like the RST, Trap Door, and 123 Series. The higher probability trades will have Volatility Band symmetry and you can see how this all fits together with a free trial subscription to the trading service.

I see that the $SPX futures are +8.5 points as I complete this at 8:00AM ET, but I don’t know whether it is a “Governor Spitzer” rally, or whether it is the beginning of an O/S bounce. Either way, the $SPX will trade below 1270.05 in this bear market. Daytraders continue to have a significant edge in this market, and can certainly sleep a whole lot better at night.

Have a good trading day!

Kevin Haggerty