The Trading Strategy This Week

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 finished the week at -1.8%, and was -1.3% on Friday to 1502.56. NYSE volume expanded to 2.2 billion shares, with the volume ratio 25 and breadth -1610. After an early downside from the previous 1522.19 close, the SPX traded between 1511.12-1515.97 until the spike down from 1514.32 on the 12:05 PM bar, due to the Bear Stearns hedge fund mortgage bail-out news, which traded to 1501.94 on the 12:30 PM bar. After that, it traded sideways into the 1502.56 close. The SPX futures accelerated this drop on the news, and buyers just walked away. This was the 4th interest rate/subprime news-related drop of more than -1.0% in the last 15 trading days. The financial sectors led the downside last week, as you might expect, with the $XBD -3.6%, BKX -2.7% and then the drugs, with the PPH -2.9% as the Democratic congress pushes for their "utopia of socialized medicine."

The bulls were out in force over the weekend and this morning, with the spin that interest rates are rising because of strong economic growth, not because of rising inflation. Reality is that interest rates have been rising, but they are not that high, and the economy is slowing considerably. The ongoing statistical reporting comedy by the government is the final Q1 GDP number, which started at +2.3% and is now looking +0.6% annualized, which is almost no growth at all and +0.15 for Q1. This will be a busy week for economic reports, including the GDP final Q1 number on Thursday, in addition to the Fed policy statement. It is also the last 5 trading days in Q2, and the important 6-month report card for money managers. This seasonality has the obvious upside bias. The SPX closed at 1502.56, near the bottom of the 1540.56-1487.41 trading range since 5/3/07, and also the 4-week -2.0 Standard Deviation level. If the bulls believe their own spin, and also want to mark up their portfolios, you have to bet that the SPX will close higher this week than last. The PPT (Plunge Protection Team) will probably step in to buy futures and accelerate buy programs if the interest rate/subprime news expands, and the Fed will once again make a calming statement, as they have twice before. However, from a daytrading standpoint you could care less about the ongoing news soap opera, because it all means volatility, and that's what makes it all work for the aggressive trader.

The SPX has stalled out at the 1535-1540 key price zone, with the high close at 1539.18 on 6/4/07 and 2 swing point intraday highs of 1540.56 (6/1/07) and 1538.71 (6/15/07). The key swing point trading range low is 1487.41, made on Friday, 6/8. It remains a trading range markup unless that low gets significantly taken out, and there is no downtrend to talk about from the possible double top. The downside price objective of the M-pattern measures to 1434, which is just a -6.9% decline from the 1540.56 SPX cycle high, which is about the same as the last significant short-term leg down from 1461.57 (2/22/07) - 1364 (3/14/07), which was -6.7%.

Net-net, traders, we play the current bottom part of this trading range from the long side this week until proven otherwise.

Have a good trading day,
Kevin Haggerty

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.