Best Daytrading Risk/Reward Strategies
Kevin Haggerty is a full-time
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The spike from the -6.7% decline to 1364
continues, as the SPX closed at 1505.62 (+0.2%) on Friday, and was +0.7% for the
week. The $INDU has closed higher 23 of 26 days, and finished the week at +1.2%
at 13264. The SPX is +10.7% low (1364) to high (1510) in 36 days, while the $INDU
is +11.2% for the same time period. It is interesting to note that a major
portion of this spike was engineered in the opening period, due to the
pre-market futures, gapping up and forcing the 9:30 AM stock openings higher,
which is even easier to do now that it is a primarily an inefficient electronic
opening process. Take a look at the 60-minute chart for the past 40 days and you
will see what I mean.
The SPX began a -8.1% decline on 5/8/06 from 1327
down to 1219 on 6/14/06, so we have that anniversary this week, with the SPX
extremely overbought on the spike since the 1364 low. The bubble all started
about 4 months preceding the mid-term elections, and it seems that any time
there was negative economic or political news, the futures would spike pre-9:30
AM, and there would often be trend up days. It happened much too often to be
coincidence, and it is likely the PPT has been actively involved in accelerating
the buy programs to force the market higher, and it’s pretty obvious they are
currently active. The Fed is pumping liquidity into a slowing economy with
rising inflation and a weak $US dollar. The money supply has been growing at a
double-digit pace for the last 5-6 months. That is how the Fed has responded to
economic problems in the past, so they must be worried about something.
The highest probability is that “they” will take
out the SPX 1552.87 3/24/00 high before there is any significant decline, so it
is business as usual for daytraders, concentrating on ATL (above the line)
stocks that pullback for several days, in addition to selected contracted
volatility patterns. The Volatility Band reversals after the discount and
premium 9:30 AM openings continue to be excellent risk/reward for traders, while
the energy sector has been the major contributor to the green side of the
ledger. The OIH is +39% since 10/4/06, and is +30.4% from the 1/11/07 125.81
counter-trend low following the 151 high. The OIH bull cycle high is 169.75 on
5/11/06, and it hit 164.08 on Friday before closing at 161.30, so like the SPX,
it is another magnet that should fall before any significant reversal.
Time is a major negative for this market, because
it is already the longest period between market tops in over 50 years, and is
currently the 3rd longest period between bear cycle lows, with the longest being
1898 days from 8/9/82-10/20/87. As of Friday, this cycle is 1667 days versus
1707 from 10/22/57-6/25/62.
Have a good trading
day,
Kevin Haggerty
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.