How to use volatility in your trading

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
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The SPX closed at 1325.76
(+13.5 points) +1.0% and +1.1% on the week.
Seventy-one percent of
that move was complete by the 9:35 AM bar. The SPX was just +3.9 points from
9:35 AM to 4:00 PM. NYSE volume was 1.66 billion shares, which was the low
volume for the week, but the volume ratio was 78, and breadth +1601, so it was
certainly one-sided. The 4 MA of the volume ratio is now 60, breadth +780 and
the 5 RSI 76, which is the beginning of the short- term overbought condition
that generally does not extend more than five days. There were no strong contra
moves for the SPX on Friday, just failed downside attempts at three different
volatility band levels.

The SPY traded to 132.31 (1.28 volatility band,
132.30) on the 9:35 AM bar, reversed to 131.85, then moved higher to 132.48 (1.5
volatility band, 132.46). This downside pause was to 132.50 and then the SPY
advanced to 132.80 (2.0 volatility band, 132.83), followed by a decline to the
132.52 close. In spite of the one-way trend day, prices reacted at the key
intraday volatility band levels, and traders still made a little money or at
worst, broke even, depending how you managed the trades.

There were many individual SPX stocks that did not
trend all day and had good trading moves to the downside after reversing at
volatility band levels and also symmetry with other tools that are incorporated
in the various strategies (Sequence Trading Module,

Trading With the Generals IV
.) Friday’s mystical +1.0% SPY move followed the
"weaker that" jobs report and Bush just happened to be all over the TV hyping
the economy. The same thing happens when there is negative Middle East news or
some other potential negative crisis.

It doesn’t matter whether it’s the strong economic
reports for March or April or a fictitious low jobs number–the spin is the
same…"up." The previous two jobs numbers were revised down, and of course the
media skips that, but then again no one really cares, because the "game" can
only be effectively played on the announcement day. The $US is negative despite
rising interest rates, precious metals are becoming a so-called safe haven
again, foreign central banks are reducing their $US holdings and changing their
reserves to include gold and other currencies, not to mention that some
petrodollars will probably switch to Euros. None of this is good for the equity
market going forward, especially at the current time stage of this bull cycle.
The economy, interest rates and commodities will keep rising as the stock market
tops out. Whether the Fed raises a quarter point the next time or does nothing
is not going to change the scenario.

Day traders should continue to focus both ways on
the energy and other commodity-related stocks because that is where the money
and the intraday volatility is.

Have a good trading day,

Kevin Haggerty