Read Larry Connors' blog – Short Term Trading Strategies
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.
Yesterday was another subprime meltdown, as the reality of the current inventory of mortgage securities is considerably lower than the mark to the mark, and there are many different over-leveraged hedgefunds and institutions in the same position, ie there will be continuing news. The SPX finished at -3% yesterday, versus the -2.7% subprime drop last Friday. In between the subprime drops the SPX rallied from the key price and time zone at 1427.39 low to 1503.89 in 3 days. The .618 retracement to 1555.90 is 1506.81. In the previous commentary, I said the market would trade lower after the oversold bounce, and this decline would be led by the financials, brokers and consumer retail sectors. The oversold bounce looked like it had more legs until the overt subprime news by BNP before yesterday's opening. As I am doing this commentary, the SPX futures are -18 (7:15 AM), so the "game" is on again this morning, if that holds.
Yesterday's opening decline set up the extended volatility strategies, and because the SPX has been most extended, it has been the primary focus for daytraders. For example, the SPY opened down yesterday -1.6% to 147.45 from the previous 149.86 close, and hit 146.80 on the second bar. This set up the 1st Hour reversal strategy, because the -2.0 Volatility Band was 146.82. The contra move ran to 148.94 before reversing down to new intraday lows and a 145.43 close. After exit from the 1st Hour reversal strategy, some traders took advantage of the continuation downside trend, but that was a market decision, not a defined strategy decision with very high probability, like the -2.0 Volatility Band Trap Door reversal. My 1st hour rule for extended opening period declines is what I call the 90%-60% rule, which says that 90% of the time there is a contra move, and 60% of the time price will resume the direction of the open. That rule governs the risk management of the reversal trade for daytraders.
NYSE volume expanded to 2.78 billion shares, with the volume ratio 16 and breadth -1882. All sectors were red yesterday, led by the $BKX -4.0%, $XBD -3.7% and RTH -3.5%. Daytraders should be ready to benefit again this morning, because as I finish this, the SPX futures are -24.5 points, so the same 1st hour strategies will be in play for the meltdown opening, unless the PPT gets involved, and these futures start to rally. The primary focus in this market for daytraders remains the major indexes, ETFs and energy stocks.
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
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