Talent Leads and the Herd Follows
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 Kevin’s Daily Trading Report, please click here.
The anticipated SPX bounce from the key price/time zone, and the extended ST-O/S condition, which was outlined in the commentaries for 7/9 and 7/14, is now +9.4% from the 869.32 low to yesterday’s 951.13 new rally high. It finished last week at +7.0%, with the INDU +7.3%, and QQQ +7.6%. In fact, the QQQ has advanced 9 straight days, and the last 5 with higher highs and lows, to a new rally high of 38 yesterday, taking out the 6/11 37.18 previous rally high.
It is always after the significant bounce or decline that everyone wants to know what you think of the market and what now, but that misses the entire point. Those of us that know how to identify high probability key price, time, and momentum zones, and have the courage of our convictions to act, will always win the horse race, and right now we are only concerned about our trailing stops for the short term long positions from the key PTM zone.
The obvious thing for the “herd” to do now is to buy the new highs in the SPX and INDU above 956.23, and 8878, which are certain to follow the new highs in the QQQ and COMPX this week. In fact they both closed at new rally highs yesterday off their 3/6/09 667, and 6470 lows. However, because of the vertical move the last 8 days, I expect any B/O this week to fall quickly back into the 956-923 range, and then the second trade through B/O would be a better play for you after the fact “herd” chasers.
The intermarket relationship for the $US dollar, SPX (major indexes), crude oil, energy and materials stocks, continues to be the macro driver of the market, and the current move is no exception. We are just pawns in that game, but being able to identify those high probability zones, and knowing the intermarket relationships that currently exist, will make you a profitable trader on balance.
If the market was basing below the new high levels, a B/O play would have a better risk reward, but not after an extended short term move, so I will favor the short side on strength in the major indexes after the B/O, and also tighten stops on long index proxy positions from the key PTM zone. The hour glass has turned upside down in the internals as the market is ST-O/S for the 4th straight day, with the 4MA’s of the volume ratio and breadth at 70, and +1306.
Have a good trading day!
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