The best strategy for this market
The SPX and most sectors
reversed to the downside in the 10 AM period. Some political
grandstanding sent all the futures lower, which set up some afternoon energy
reversals. The SPX made a few choppy intraday reversals after the decline but
finished the day at 1301.74, -0.5%. The Dow was also -0.5% to 11,283, with the
QQQQ -0.2% 41.87. The TLT led the downside at -1.2%, while the only green finish
was the SMH, +0.9% and XAU, +0.7%. NYSE volume was 1.65 billion shares, with the
volume ratio 38 and breadth -819. This was the third straight down-day for the
SPX and Friday is month-end, so the bias is for the market to be higher Friday
than Tuesday’s close. If there is continuation weakness in the SPX today, there
is initial support at the 1296 – 1294 level, which is also a good zone for some
intraday setups.
The intraday volatility is best in the energy, gold, copper, steel and other
commodity-related stocks, in addition to selected semiconductors like
(
MRVL |
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PowerRating),
(
BRCM |
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PowerRating),
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NVDA |
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PowerRating), and
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MCHP |
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PowerRating), to name a few. Other profitable
sources for traders have been the brokers, transportation and defense stocks.
There continue to be short-side opportunities in the home builders and selected
retail stocks..
My overall market opinion has been and still is
that Wave 5 (bull cycle high) completes in the 1305 – 1385 range. That
observation was made after the SPX 1060.72, 08/13/06 Wave 4 low was confirmed.
Equity allocations should be significantly reduced by now, or at least
protected. The strategy that makes the most sense to me based on the current
time and price of this bull cycle and the low implied volatility is Delta
Neutral Long Synthetic Straddles for those of you who have option experience.
This enables you to capture a significant move in either direction with a
defined risk. The next key SPX zone is the 1323 .707 RT to 1553 from 769 through
1328, which is the 2.618 extension of Wave 4 (1163.23 – 1060.72).
Have a good trading day,
Kevin Haggerty
