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
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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
