Did You Take This Trade?

August 15, 2003
Kevin Haggerty

What Thursday’s Action Tells You

The Dow took a run at the highs again yesterday,
taking out the 9323 rally high close and trading to an intraday high of 9335 on
the 12:10 p.m. ET bar where it immediately reversed and traded down to 9285. It
closed up +0.4% at 9311 and seems ready to take out the magnet with some help
from the futures “game.”

Because of the power failure, yesterday’s market
action is secondary to today’s trading because of the dislocation of personnel
on the NYSE floor and upstairs trading desks, which will be less than fully
staffed. The Generals will be reluctant to get involved until they see the
logistics of the market running smoothly. I expect this will impair liquidity
and trading will be erratic, as the futures will be able to push index prices
around with little opposition until things are back to normal.

For Active Traders

I have included one- and five-minute charts of
the SPX which highlight the excellent trades yesterday in the futures/SPY or
many of the big cap stocks that have a high correlation with the index. Looking
at the five-minute chart, you see the SPX took out the previous day’s low of
980.85, trading to 980.36 on the 9:45 a.m. bar. It then reversed that low, which
is a trade opportunity, but the pattern was also a 1,2,3 lower bottom. The
logical trendline (A) was broken as the SPX traded to 985.96 (swing point 2) and
then 980.36 is the swing point 3 low, setting up the 1,2,3 lower bottom. The
first entry was reversing the 980.85 low. If you missed that, you got a Trap
Door reversal long entry above 981.78. Both of these strategies are textbook
trades from the seminar video and modules.

The third trade opportunity was a reversal of the
240 EMA, which was at 982.50, with the 20-day EMA just above at 983.50 (see
one-minute chart). I included the one-minute chart, as it is used in conjunction
with the five-minute chart to aggressively trade the futures if that’s what you
prefer to do. When SPX price is above the 20-period EMA on the 60-minute chart,
which is the same as the 240 EMA on the five-minute chart, it is the filter that
puts the one-minute chart setup into play. Simply put, when the three- and
eight-period EMAs are above the 21-period EMA, you are long the futures,
provided the SPX price is above or breaking above the 240 EMA on the five-minute
chart. I use an 8,17,9 MACD, which should be positive, and also Parabolic SAR as
an aggressive trading stop filter. This is not shown due to chart restrictions.

As you see on the one-minute chart, the 983.50
20-day EMA got taken out, so that was another long entry opportunity. If you
passed on the first two reversal patterns, the one-minute chart setup would have
put you on board as the SPX started to trend as the intraday dynamics were
obviously getting better.

Today’s Action

There is no plan of action today other than to
watch the early trading and see how the market starts to trade. If there are
some glaring erratic price movements in the index proxies, then that would be
opportunity, but with smaller size and tight stops. I am doing this at 6:00 a.m.
ET, so I don’t even know whether all of the exchanges will open on time, or even
open. The preferred trade today would probably be to take the day off and shut
it down and enjoy the long weekend.

Have a good trading day,

Kevin Haggerty

Did You Take This Trade?

BUY THE FEAR, SELL THE GREED

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