Current Day Trading Focus

From 1990 to 1997, Kevin Haggerty served as Senior Vice President for Equity Trading at Fidelity Capital Markets, Boston, a division of Fidelity Investments. He was responsible for all U.S. institutional Listed, OTC and Option trading in addition to all major Exchange Floor Executions. For a free trial to Kevin’s Daily Trading Report, please click here.

The market action was captive to the Bernanke/Paulson inquisition yesterday, so there were few good day trading opportunities in the major indexes. NYSE volume dropped to 1.08 billion shares, with the volume ratio 40, and breadth -581, as the SPX closed at 1185.87 (-0.2), INDU 10825 (-0.3) and QQQQ (+0.7). There was some more rotation into defensive issues like consumer staples, health care/medical, and bio-techs. Crude oil declined, and the $US Dollar had a small bounce (+0.4) after going -4.3 in 4 straight down days on the negative reaction to the derivative meltdown last week, and perceived ramifications of the $700 billion “proposal”, which some see as phase one of the nationalization of America.

The setting up of this new entity to buy up bad financial assets will help restore market confidence short term, and there will be a relief rally, but this is just one step in the process. The rally might not be as sharp as others expect, as there are very few shorts left who need to cover their positions. In order for any proposal to work, it has to solve the problems in the credit default swaps market. After the RTC was set up in 1989, the major indexes didn't bottom until almost a year later, and even more than that for the housing market and economy.

It is not about the technicals right now until the market knows, and reacts to the details of the proposal, which looks like it will be approved in some form by early next week. If the credit marks don't clear immediately, there will be more problem institutions going the way of Lehman Brothers (LEH | Quote | Chart | News | PowerRating), American International Group (AIG | Quote | Chart | News | PowerRating), etc. There is no compelling reason for position traders to buy the news of the approved proposal, because there will be more downside “air pockets”, and lower levels ahead to take advantage of, especially with the current earnings season, which will once again be lower than the analysts expect, not to mention the continued decline in housing prices.

Day traders should continue to channel their trading in the major indexes, ETF's, defensive issues, and also the energy/materials sectors because of the great intraday volatility.

Have a good trading day!

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