Technology Sector Seasonality in Play

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.

In continued holiday trading, NYSE volume was light at 1.38 billion shares, and liquidity thin, as the SPX finished almost unchanged at 1525.40 (+.03%) as did the $INDU at 13566 (-.08%). The volume ratio was neutral at 50 and breadth -293, due in part to the rise in interest rates, as the TLT was -1.2%. There is a positive seasonal technology stock bias in play, as the QQQQ leads the SPX and $INDU on this rally, and has broken out of its recent trading range, while the SPX and $INDU are still below their cycle highs and in their current ranges below 1540.56 and 13692. The QQQQ has rallied from July lows 3 of the past 4 years, on 7/18/06, 7/07/05, 8/16/04, 7/1/03 and broke out of its current range on 7/72 above 47.92, closing yesterday at 48.66. The Trading Service focus list of stocks reflected the anticipation of this technology seasonality, and we will ride the train until it stops. Energy also continues to be a key focus, and the best individual sector for daytraders, and also the lead sector for the Generals. Crude oil ($WTIC) closed at a new high yesterday (71.81) after breaking out of a 5-month trading range with a 67.10 high. The $US Dollar matched its May 81.25 low yesterday before closing at 81.54. The 10-year low is 80.39, so this is a very dangerous zone for the $US Dollar, and breaking through the lows could be a significant catalyst for a replay of some degree of a 1987 sharp decline. My guess is that the Plunge Protection Team (PPT) is already on stand-by to soften any selloff, should that develop.

The travel range yesterday for the major indexes like the SPX, $INDU and IWM was a positive for daytraders, as they went trend down in the morning and trend up in the afternoon. The QQQQ consolidated in the morning, but had a strong afternoon trend up. The initial SPX short was an RST that declined 7.6 points to 1517.72 from 1525.36. There was Fib retracement symmetry in this zone, with both the 1493.61 and 1484.18 significant lows last week, so that traders had the decision to also take a long entry after the short exit. The SPX traded up to 1525.40 close. At worst, traders familiar with the strategy traded one side or the other, or maybe both, so it was a very positive day. After a sharp up opening, the XLE and OIH dropped like a knife to their -1.0 Volatility Band zones, and traders were able to take advantage of this strategy reversal. The XLE traded from the 70.00 entry to a 70.72 high before closing at 70.58, while the OIH ran from 177.15 to 179.28 and closed at 179.12. There were similar reversal in the OIH/XLE component stocks. Most of the focus list stocks like ADI, NVDA, LLTC, IBM, to name a few, had defined strategy setups, as did ESRX and HON. We have capitalized on the SPX in the 1535-1540 key price zone, as well as the bottom of the range below 1500, and that will continue until this 8-week trading range is resolved. Tech stocks and energy are the primary sector daytrading focus in addition to the other ATL (Above The Line) stocks with good daily chart positions. This list has narrowed considerably on the current bounce off the 1482.18 low last week.

The current rolling over the LBO market and $US Dollar weakness are significant potential downside market catalysts, in addition to the continued unraveling of the subprime market securities. Time, which is the major market determinant, is obviously against this bull cycle, as it is already the longest period between market tops in over 50 years. Hedge your long-term investments accordingly.

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.