Short Term Focus & Long Term Strategy

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 has advanced +7.4% (low to high) in 9 days from 1406.10 to the 1510.63 intraday Friday, before closing at 1504.66 +1.5% on the week, and -0.2% for Friday. The probability was high for a reversal because of the oversold conditions and the fact that the SPX was extended beyond the -2.0 3-month Standard Deviation level. The major indexes have now advanced to their .618 retracement zones to the 10/11 highs, and are into the short-term overbought zone. However, we have the Fed announcement on interest rates tomorrow, and the market is certainly expecting one, but traders should just worry about trading any significant market rate reaction, and lead the "what if's" to the empty suits on CNBC. The put/call ratios in the major indexes have risen, so the "herd" have most likely been hedging some equity positions/portfolios.

If there is another vertical spike on any rate cut Tuesday like the "magic" vertical spike on the subprime band-aid fix speech by the President last week, it is a selling opportunity for traders. Neither the subprime moratorium for a minimum amount of buyers in addition to other restrictions, or a Fed rate cut this week, will prevent or cure more problems ahead in the credit market. When the banks pull back in a crisis, they overdo it, just as they do when they "throw" the money at you in the good times. Bankers have their fear and greed problems, just like the stock market, and they will not get aggressive any time soon in their lending based on a rate cut this week. The Bureau of Labor Statistics continues to massage the economic numbers, especially the jobs number with the birth/death adjustment, which has become a joke. Only those professionals who have no axe to grind will report it correctly, and that certainly doesn't include CNBC. Net net, the economy and credit problems have to be much worse than reported, or the Fed wouldn't continue to grow the money supply (M3) at a record pace (shadowstats.com) and keep cutting rates. At the same time, the "real world" inflation and prices continue to rise across the board, so on balance, it is a significant negative for the equity markets.

The reversal strategies continue to provide the better daytrading opportunities, because the one-way trend days are few and far between, but the futures-induced moves on almost every economic report, etc, is exaggerated, so there is usually a good trading opportunity, especially in the major indexes and ETFs. The trading focus into a year-end markup continues to be on the big-cap "major indexes" percentage winners for 2007 year to date, in addition to energy, commodity and multinational stocks. Also, I have not changed my opinion that a continued rally into year end is a good short opportunity, and also another chance for long-term investors to significantly reduce equity exposure, or hedge their holdings. The SPX put implied volatility is now 19%, which is down from the 52-week high of 28% on 11/26, and if the SPX challenges the 10/11 1576 high, the implied volatility will most likely drop to the 10-12% low end of the range. That would also be an excellent low volatility opportunity for knowledgeable traders to put on synthetic delta neutral straddles.

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