Short-Term Traders Zone
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 SPX has bounced +7.9% in 7 days off the 1370.60 low on 8/16, yet volume
declined every day last week. On Friday, NYSE volume was just 1.17 billion
shares, with the volume ratio 85 and breadth +1831. The SPX (1479.37) was +1.2%
and +2.4% for the week, while the QQQQ was +1.4% and +4.0%. The $INDU finished
the week +2.3% to 13379. The market is short-term oversold with the 4-MA of the
volume ratio 68 and breadth +1148. The commodity sectors led last week, with the
XLB +6.7%, $HUI +6.1% and OIH +5.4%. The only sector to finish red on the week
was the $BKX -1.0%. Crude oil traded below $70 last week, but that didn’t
prevent the bounce off the 200-day ema zone by the OIH and XLE which finished
green for 3 straight days, much to the delight of daytraders.
The discount rate cut from 6.25% to 5.75% put only a temporary hold on
negative subprime and LBO-related news to come. The $US Dollar is holding on by
a thread, and has declined from 82.13 to 80.68 in 7 days, while interest rates
have declined on a fear move to short-term Treasury paper. The effective Fed
funds rate was 4.9% into Friday, well below the Fed’s 5.25% current pegged rate,
so the expectation of Fed action is obvious. The Fed didn’t cut the rates
because they wanted to, but because they had to, and these rate cuts are just a
band-aid to a bigger problem that will continue to play out going forward. The
FOMC minutes from 8/7 come this week at 2 PM on Tuesday, plus this week is
month-end for the Generals, so the volatility might pick up, despite the coming
Labor Day weekend.
The SPX is just below the extended volatility levels that have preceded every
short-term reversal for 2007, so Trading Service members are set to take
advantage of it once again. The 1370.60 low zone will be tested, at a minimum,
and most likely get taken out before this down cycle plays out. The -11.9% SPX
decline from 1555.90 to 1370.60 does qualify for a “soft landing” 4-year cycle
low, like there was in 1994 when the SPX declined -9.7%, which was the minimum
percentage cycle low in over 50 years. However, after the current longest bull
cycle over the same period measured from top to top, in addition to the current
credit problems, my guess is that there will be a bigger percentage decline than
-11.9%. Whether or not that scenario plays out, it doesn’t matter to daytraders,
because it is just about the daily volatility, rather than whether the market
will “do this or do that.” Short-term position trades can continue to take
advantage of these extended volatility type situations, which is setting up
right now, provided you know how to recognize them and trade them.
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