A Winning Strategy for All Markets

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 took out its 1/23/08 1270.05 low yesterday, as was anticipated in this bear cycle, hitting 1256.98 before closing at 1276.60. Last Friday was the initial Bear Stearns (BSC | Quote | Chart | News | PowerRating) panic day, and the $SPX declined from 1321.47 on the opening bar, and then accelerated to the downside on the 9:45AM bar to a 1278.35 low on the 10:00AM bar, which set up the first RST reversal of the day. The -2.0 Volatility Band was 1280.38, and this RST contra move advanced to 1303.88 on the 10:15AM bar for a great 1st hour reversal trade.

In the afternoon the $SPX resumed the direction of the discount opening and traded down to a new intraday low at 1274.86, which set up the 2nd RST reversal that ran to 1299.05 before closing at 1288.14.

Traders that are familiar with the RST strategy, and the actual probability of the different volatility band levels that we use each day, had two great trades on the long side despite the "BSC panic day." Yesterday started with a big discount opening following the news that BSC was insolvent, and JP Morgan helped by the Fed, bid $2 for the firm. This sent the $SPX down to 1262.71 on the 9:45AM bar and set up the RST reversal strategy again with entry above 1266.48 that ran to 1284.96 on the 10:50AM bar. As it did on Friday, the $SPX resumed the direction of the discount opening, and made the 1256.98 intraday low on the 1:40PM bar, which set up the second RST, in confluence with the -1.5 VB (1257.53), and 1257 which is the 45 degree angle measured from the 1576 high. This RST ran to 1287.50 before closing at 1276.60.

The two day BSC panic resulted in four excellent RST reversals from the long side trading extended volatility, which is part of my "core framework" for traders. If you want to super charge your trading learn this methodology.

NYSE volume expanded to 2.0 billion shares yesterday, with the volume ratio 31 and breadth -1136. Of course, the Brokers led the downside as BSC opened at 2.86 (-90.5%) and closed at 4.80 (-84%). Lehman Brothers (LEH | Quote | Chart | News | PowerRating) was -48.1% at one point, but traded up in the afternoon to finish -19.1%. The shorts had a great couple of days to bank profits. There were also some excellent RST trades yesterday in our focus list energy stocks like APA, SU, and Transocean (RIG | Quote | Chart | News | PowerRating), to name a few, as well as three different extended volatility trade opportunities in the XLE. The primary focus for day traders is still energy and commodity related stocks, in addition to the major indexes and ETFs.

The technicals remain oversold, and the $SPX is back to the -2.0 STDV level on a one year chart, so any short term rally is no surprise. However, the derivative meltdown news obviously takes precedence over the technicals right now. It is a thrill a day in this current market, and the $SPX futures are +20 points as I complete this commentary at 8:00AM in front of the FOMC meeting today (2:15PM) where most expect an overnight lending rate cut of 100 basis points or more.

The market is obviously in need of positive news that has the staying power of more than one day- like the Fed $200 billion intervention, and the ridiculous stimulus package passed by the president and Congress to give away dollars on street corners; most of which will, by necessity, not be used to stimulate the economy.

The NYSE is closed this Friday so the triple witch option expiration activity is Thursday, which means we might get some good intraday travel range to trade, especially after the FOMC announcement.

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.