Traders' Short-Term Reversal Zone

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 month of August +1.3%, but the total volatility of the swings for the month was 34%. The SPX has declined -11.9% (high to low) from 1555.90 to 1370.60 in 23 days, and has since bounced +9.2% in 13 days from the 1370.60 low day on 8/16. Both 7/16 and 8/16 have significant long-term price and time symmetry measured from both the 10/10/02 769 cycle low and 3/24/00 1553 last bull market top. 8/16 is significant in that 1370 is the .236 retracement to 769 from 1556. The key time symmetry was measured using the 787 point differential between 769-1556 and the 1740 calendar days between those dates (you don't get the how, just the when). The SPX +9.2% bounce in 13 days puts the market in a short-term overbought position, with the 4-MA of the volume ratio 73 and breadth +1385 (>62>900). The SPX and $INDU have retraced to their .618-.786 retracement zones of the previous 7/16 high, while the QQQQ hit 50 yesterday versus its cycle high at 50.66. They are also all extended on a short-term Standard Deviation basis, so the probability of a reversal from this zone is high.

NYSE volume was light yesterday at 1.36 billion shares, with the volume ratio 79 and breadth +1385. Gold, semis and energy led yesterday, as the SPX finished +1.1% to 1489.42. The $HUI was +2.8%, SMH +2.6% and OIH +2.5%. Energy stocks have had an excellent bounce the past 13 days, with the OIH +19.4% and SLB +24.5% to name a few. Just like the major indexes, the primary daytrading focus energy and multinational stocks are also extended, so there is no long edge at current levels. The SPX futures are -10 points at 8:10 AM, so the tail continues to wag the dog, as the low volume Globex futures activity influences the larger discount and premium New York openings we have seen so much of over the last month. The early Globex market is just a place for the big players to manipulate the NY market openings, and outside of that, it is useless. It is hard to believe the regulators continue to let it happen, and just look the other way, just like they do with certain types of program trading that is not simultaneous, and uses one market to influence another market, which was not the intent of the original rule.

There has been a lull in the credit news, while the Fed and Administration have done a good job of jawboning and injecting liquidity, but the storm hasn't passed, and there is more to come. The 1370.60 low will be tested, and the highest probability is it will be taken out on any continuing negative credit news. But the unknown is how hard will the PPT (Plunge Protection Team) fight to keep that from happening before the 2008 elections. My bet is that they will start their election manipulation from lower lows, but it will accelerate a very tradable long move for position traders, as the Generals and hedge funds push hard to save performance for 2007.

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