The Most Challenging Task for the PPT Since 1987

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.

Friday was another 1st Hour reversal bonus day for daytraders. The SPX hit 1431.42 on the 9:40 AM bar on another discount opening, versus the -1.0 Volatility Band at 1434.83, and -1.28 Volatility Band at 1429.71. The initial reversal ran to 1442.52. However, after resuming the direction of the open, as per the 90-60% rule outlined in the previous commentary, the SPX made the 1429.74 intraday low right on the -1.28 Volatility Band af 1429.71 (10:35 AM). It then reversed up to 1462 before fading to close at 1453.64. Suffice to say, it was a good day for daytraders using the Trap Door strategy, with Volatility Band symmetry. The DIA and QQQQ made similar moves. You should be trading the SPY and futures off the SPX cash index, so it doesn't really matter which one you use.

The SPX finished the day flat at 1453.64 +0.04%, and +1.4% for the week. The $INDU was -0.2% to 13240, and the QQQQ -0.9% to 47.28. NYSE volume was 2.52 billion shares, with the volume ratio 45 and breadth -767. It was a key price and time week, starting with the SPX 1427.39 low on Monday, versus the 1427 .382 retracement to the 1212.29 low on 6/14/06, where the last advance to 1555.90 started. Last week was week 21 from the 3/16/07 1364 low, and the week ending 7/20/07, with the 1555.90 cycle high was week 21 from the 2/22/07 1461.57 high, which preceeded the -6.7% decline to 1364. There was other long-term symmetry, but I only provide that in the Trading Service. The surprise wasn't the bounce from 1427.39 on Monday to 1503.89 on Wednesday from an oversold condition at the -3.0 Standard Deviation band (3-month chart) and the 1427 symmetry, but the Thursday subprime meltdown that caught position traders and hedge funds that played the bounce.

The weekly SPX range was 5.4% (76.5 points) between 1427.39-1503.89, but the travel range was significantly more volatile, as it traded from 1427.39 to 1503.859, then back to 1429.74 on Friday before rallying to 1462, following by the 1453.64 close. I think the PPT (Plunge Protection Team) has become the daytrader's best friend, and the short-trader's worst nightmare. The electronic execution process, with little or no NYSE specialist participation, is an absolute failure in fast markets, and the new short rule is clearly an accelerator in a down market, and detrimental to all. All of this means more volatility, and it favors daytraders, provided you understand how to trade extended volatility strategies, and especially if you can recognize key price and time zones.

The continued subprime implosion news will obviously continue to put significant pressure on the market, as you would expect, and it comes at a time when the bull market cycle has run out of time, which is more significant than price in anticipating a reversal from a bull to bear cycle or vice versa. The minimum SPX bear market decline in over 50 years was -9.43% in 1994, and it is highly improbable that raving bull Larry Kudlow will get his Goldilocks ending, similar to 1994. In fact, only 7 of the last 14 4-year cycle lows have taken place in a recession (thechartstore.com). The very negative risk/reward of this bull cycle was outlined in previous commentaries, long before subprime burst on the scene, and long-term investors had ample warning to reduce equity allocations or hedge portfolios.

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