Anticipated Reversal Will Lead to Short Opportunities
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
stocks, the SPYs, QQQQs (and more) for the next day’s trading?
Click here for a free one-week trial to Kevin Haggerty’s Professional
Trading Service or call 888-484-8220 ext. 1.
The Citigroup meltdown on Tuesday was -2.5%, and the Merrill Lynch meltdown
yesterday was -2.9%, with the other excuse being the Philadelphia Beige Book, as
if it is a surprise in an economy that has been sinking for quite some time,
with the credit crisis, housing decline, rising food and energy prices, etc. The
SPX is now -15.5% high to low in this bear cycle. NYSE volume was 2.16 billion
shares yesterday, with 1.95 billion shares down, for a volume ratio of 9, the
same as Teusday, and breadth was -2248.
The notion that global growth prospects have decoupled from the U.S. economy
has dimmed considerably the last 3 days, as commodity sector stocks have dropped
like a knife. The S&P Materials Index is down -11.4% the last 3 days, while the
OIH is -12.3%, and the XLE -11.1%. However, both days were profitable from the
long side for daytraders using reversal strategies from the trading modules and
in the Trading Service. The same is true for the SPX yesterday, as it started
with a Flip-Top short on 10:00 AM bar, in addition to an RST XLE short on the
same 10:00 AM bar. The SPX short was followed by reversal opportunities from the
-1.0, -1.5 and -2.0 Volatility Bands, all of which were profitable. Two of those
VB trades were also RST entries long entries. If you were smart enough to just
stay with the initial short, it was obviously a home run, but at 1365, the SPX
was already at the 1 year -3.0 STDV level, so when there were reversal setups
after the 1354.55, 1346.02 and 1340.76 lows, the odds favored taking them.
Either way, it was an excellent day for daytraders who know my strategies.
The market is obviously extremely oversold, and beyond the SPX 1-year -3.0
STDV level, and I see that the SPX futures are +18 as I complete this at 8:30 AM
ET. I guess the PPT meeting went well last night, but going into the long
weekend, some short covering is obviously expected, plus there will be some
option expiration activity, and with the extended oversold STDV level, the PPT
help is probably not needed until the next air pocket down. Most hedge funds are
in the hole for 2008 so far, and will be eager to catch a contra move in this
bear market, because they start on a dime and end the same way. But the
percentage moves are good in a short period of time, and we are obviously in a
reversal situation right now.
In the previous commentary on 1/16 (Reversal Strategy in Extended STDV Zone),
I said to play the long reversal strategies on weakness, and that the rallies in
the bear market will be sharp, but the odds favor a decline at least to the .382
retracement zone at 1268 (1576-769), which is about a 20% decline from 1576. I
also said for that to change, there must be some overt measure taken to reverse
or slow some of the obvious problems we are facing right now, that the Fed and
Treasury Secretary Paulson have either denied or lied about since the Bear
Stearns hedge fund flap, accelerated the entire derivatives meltdown. There is
no leadership right now, and until that changes, especially with a reversal in
the financials sector, the bear cycle will be in charge.
Check out Kevin’s strategies and more in
the
1st Hour Reversals Module,
Sequence Trading Module,
Trading With The Generals 2004 and the
1-2-3 Trading Module.
Have a good trading day,
Kevin Haggerty