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The SPX had the narrowest range last week at 11 points (1435.20-1424.21) since the 4-day Thanksgiving week, which was 10 points.  The average daily range was only 6.8 points, so daytraders didn't have much to work with in the major indexes.  However, there were many good opportunities in individual focus stocks, especially in the energy sector.  NYSE volume was 1.64 billion shares Friday, and the SPX closed at 1430.50 (+0.3%), while the $INDU was -0.2% to 12566.  The QQQQ was +0.2% and $COMPX was +0.3%.  The $INDU was red primarily due to the earnings reactions in IBM (-3.3%) and GE (-2.8%).  On the week, the SPX was -.01%, $INDU -0.2%, QQQQ -1.6%, and $COMPX -2.1%.  The internals on Friday were better than the major indexes, as the volume ratio was 71 and breadth 1321.  The short-term overbought condition has worked itself off with no real change in the SPX.  The 4 MA of the volume ratio was 54 and breadth +207.

The key sector action on Friday was the bounce in crude oil and energy stocks (see January 17 commentary), as the CL0702 was +3.0%, OIH +2.1%, and XLE +2.7%.  Gold stocks also advanced with the $HUI +2.4%.  The Friday bounce made the OIH (+3.7%) and XLE (+2.1%) leaders on the week, while the semiconductors were the big losers with the SMH -4.9%.  They took some earnings hits, in addition to Bear Stearns painting a less than rosy picture going forward.  The volatility contracted last week instead of expanding during the time dates.  But contracted volatility precedes aggressive moves, and that is what we will get shortly.  The option expiration was probably a factor in the equilibrium price range last week.  Direction is not as important to day traders as is volatility. 

The daytrading bonanza on Friday in the energy stocks was available to those traders who played GPB (Gap Pull Backs), which was the same for the OIH, XLE and many of the component stocks.  The SPX/SPY had an initial RST sell setup at the .618 retracement to the 1435.20 SPX weekly high, followed by a 1-2-3 higher bottom cover and long at the .707 retracement to the 1424.21 weekly low.  The DIA had both an RST sell and RST buy, because it made a lower intraday low than the SPY, which had made a higher low, which is why it was a 1-2-3 higher bottom. 

The first hour is the most consistent profit-maker for daytraders, and is getting better with the inconsistent discount/premium openings, as electronic execution plays the major role, and the NYSE specialist a smaller one.  The more electronic the opening procedure, the more erratic it will be, which is a major plus for daytraders going forward. 

Have a good trading day,
Kevin Haggerty

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.