Price, Time, Momentum, and a Short Squeeze

July 17, 2008
Kevin Haggerty

From 1990 to 1997, Kevin Haggerty served as Senior Vice President for Equity Trading at Fidelity Capital Markets, Boston, a division of Fidelity Investments. He was responsible for all U.S. institutional Listed, OTC and Option trading in addition to all major Exchange Floor Executions. For a free trial to Kevinâ€™s Daily Trading Report, please click here.

7/17/08 COMMENTARY

In the previous commentary I said the euphoria of the FNM/FRE bailout ended on the opening bar (7/14) as the XLF was +3.9, and at the end of the day the BKX was -8.5 and XBD -4.9 The $SPX only finished -0.9 that day because the energy and materials stocks were up strong. On Tues [7/15] the $SPX made a new bear market low to 1200.44 on the 10:05AM bar, which set up an excellent 1st hour reversal strategy I call the Trap Door in the trading modules. The entry was above 1203.93, and there was symmetry with the -1.5 VB 1202.31, and 1204, which is the 180 Degree angle (Square of 9) measured from the 1576 bull market high. The $SPX ran to a 1232.21, high before a significant reversal into the 1214.91 close (-1.1). It was a high probability trade setup, and the move was accelerated by the sharp drop in oil that accelerated on the 11:00AM bar. The USO made a 118.02 high in the first half hour, and then traded down to a 110.11 intraday low. It accelerated from 115.25 to 110.11 on just two bars (5 min), and so did the $SPX to the upside.

The BKX had its biggest move ever yesterday at +17.3, while the XBD was +13.1 The double figure % gainers in the $SPX yesterday were essentially all financial stocks, as you might expect. The energy and materials stocks closed red, led by the HUI -2.2, XLE -2.0, and OIH -0.7 Crude oil had another big down day and settled on the NYMX at $134.60 (-4.1) while the $US Dollar index (DXY) was +0.5 NYSE volume was heavy again at 1.73 billion shares, with the VR strong at 78, and breadth +1687.

The $SPX accelerated yesterday on the sharp drop in crude oil on the 10:35AM energy report, as you see on the USO chart. Bernanke and Paulson have been reporting to the inept Congress the last two days, and Bernanke finally said what has been has been obvious for quite some time that it is both recession and inflation they have to combat and dropped that $US Dollar jawboning about fighting inflation which fooled nobody except for a quick short covering rally in the dollar for a few days. We said then, and again now, that the Fed’s primary concern and job is to preserve the solvency of the financial sytem. The monetary system is not going to prevent crude oil prices rising, and food prices from skyrocketing because of one of the biggest boondoggles in history by the Govt., which is the â€œethanol hoaxâ€, which will probably be followed by the biggest hoax of all, which is the carbon tax and trade.

In the previous commentary I outlined once again, the extended technical condition of the market, with the $SPX extended beyond the -2.0 STDV level on the 6-month STDV chart, and also the downside symmetry which includes the higher probability bottom zone of this bear cycle, which is 1172-1077, and that includes both the .50RT and .618RT to the 769 10/10/02 last bear market low from 1576. You should review that so I hope you can say I was wrong, but I still think that this market is headed down to that zone. I also said this is a key time week and of course it is also an option expiration so there is a lot going on. CNBC is hyping the better than expected earnings on some stocks, but as always, they fail to mention that they were lowered multiple times, and the â€œempty suitsâ€ never tell you by how much.

The short squeeze party has carried over as the $SPX futures are +12.5 points as I complete this at 7:50AM, and crude oil is down a point. It never ceases to amaze me that these kind of eruptions always seem to occur around the key time dates, and even more so when there is price symmetry and extended momentum in play. That is why it is my â€œcore philosophyâ€ about high probability trading.

The next commentary is Tues 7/22/08

Have a good trading day!

Click here to find full details on Kevin’s courses including Trading with the Generals with over 20 hours of professional market strategies. And for a free trial to Kevinâ€™s daily trading service, click here.

Click on these images to enlarge.

alt=”S&P 500 Index 080715_$SPX Chart”
pbsrc=”https://tradingmarkets.com/media/2008/haggerty/0717haggerty.gif” pbCaption=”” onclick=”Pop(this,50,’PopBoxImageLarge’);” width=”550″ height=”350″ class=”PopBoxImageSmall” title=”Click to magnify/shrink” />

alt=”S&P 500 Index 080716_$SPX Chart”
pbsrc=”https://tradingmarkets.com/media/2008/haggerty/0717haggerty2.gif” pbCaption=”” onclick=”Pop(this,50,’PopBoxImageLarge’);” width=”550″ height=”350″ class=”PopBoxImageSmall” title=”Click to magnify/shrink” />

United States Oil Fund,LP Chart pbsrc=”https://tradingmarkets.com/media/2008/haggerty/0717haggerty3.gif” pbCaption=”” onclick=”Pop(this,50,’PopBoxImageLarge’);” width=”550″ height=”350″ class=”PopBoxImageSmall” title=”Click to magnify/shrink” />

Price, Time, Momentum, and a Short Squeeze

BUY THE FEAR, SELL THE GREED

Quick Links

Company Info

Contact

Company Resources