High Probability Reversal Zones

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 SPX advanced +27.3% (203 PTS) in just 29 days from the 11/21/08 741 low to the 944 high on Tuesday. This resulted in a very ST-O/B condition, as you might expect, with the 4-Day MAs of the volume ratio and breadth at 75 and + 1754, in addition to the 5RSI of 81. This week has long term time symmetry, which is outlined in the Trading Service, so you may access it with a free trial to the Service. The 944 high is the 360 Degree angle measured from the 741 low, and 938 is the .236 Fib RT to 1576 from 741. The high close since the B/O from the trading range with the double 919 highs was 934.70 on Tuesday, so both the Fib RT and key time angle in addition to the ST-O/S condition combined to put a high probability reversal in play. The reversal has more to go but you can't know the duration or extent with the same probability that you can when identifying a key reversal zone. The anticipated zones and angles from the 741 level were outlined in the 11/28/08 commentary in the Trading Service, so with that free trial you can access it through the archives.

NYSE volume dropped to 1.2 billion shares yesterday, with the VR 63, and breadth +769 The intraday low for the SPX was 896.81, but a late bounce carried it to a 909.73 close. However, the odds favor more downside in this reversal. We get the expected "worse than" jobs report  this morning, and CNBC will of course hype it to a "midnight madness" level, which usually sets up some extended 1st hour reversals for daytraders. The initial upside minor resistance is 919 and the downside minor support is 851. If the reversal takes out 851 then the Fib levels in play are 842.43 (.50) and 818.64 (.618).

There has been some softening in the credit markets, and the other major positive is the significant decline in the 30-year mortgage rates with both Wells Fargo and Chase advertising a 4.875 rate. However, after listening to Obama's speech yesterday which was all government, government, and more government, because they are the only one that can save the economy from depression which has all occurred since last September because of the "derivative meltdown", not a significant business cycle decline. The recession started in December 2007, and the same economists that were calling for a soft landing before September are now in the "depression like" camp as is the socialist about to take office on January 20, unless of course he is allowed to save us with pork filled infrastructure projects which actually crowd out private investment, and then rain dollars down on the 40% of people that don't pay taxes and call it a tax cut. The teleprompter he was reading from wasn't big enough for all the platitudes he spit out that are going to save the world. However, it is only reality when the "bill" is passed so we shall wait and see.

In addition to the major indexes and ETFs the best daytrading opportunities during this rally have been in the industrial (especially the defense and infrastructure related stocks), energy, and certain health care stocks. The mega cap stocks with good balance sheets are the obvious favorites.

Have a good trading day!

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