Key Reversal Strategies Make the Day

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 finished -1.4% on Wednesday, and the TLT was -0.7%. The good news for daytraders was that there was continuation weakness on the opening yesterday, and the SPX traded down to 1504.75 on the 10 AM bar, which was an extended move, versus the Wednesday 1537.32 intraday high. This "air pocket" set up the Trap Door reversal yesterday, after the SPX traded to a 1504.75 intraday low on the 10 AM bar. The Trap Door entry was above 1507.55, which eventually traded up to a 1522.90 intraday high, and closed at 1522.19 (+0.6%). However, for those traders that missed the initial Trap Door entry, the SPX traded down from the 1st contra move from 1518.89 to 1510 where a 1-2-3 higher bottom set up in symmetry with the .618 retracement to 1504.75, which was 1510.15. If you missed the Trap Door opportunity, you caught the subsequent 1-2-3 higher bottom move to 1522.90. Two of the basic strategies, Trap Doors and 1-2-3's, made it an excellent trading day. There were also some excellent 1-2-3 higher bottom setups in the XLE, XOM, CVX, and NOV, to name a few of the trading service energy focus list stocks.

NYSE volume was 1.6 billion shares, and the volume ratio 67, with breadth only +320, due in part to the decline in financial stocks, as interest rates increased, with the TLT -0.5%. The semis led with the SMH +2.8%, followed by energy, with the OIH +2.3% and XLE +1.9%. With the increase in rates, the BKX was only +0.8%, and XBD +0.2%, versus the SPX which was +0.6% to 1522.19. If you are in tune with the specific strategies in the trading modules, it was a significant plus day.

The SPX made a 1538 intraday high last Friday (6/15), with a volume ratio of 80 and breadth +1894. This move was off the previous Friday low of 1487.41 (6/8), when it was a short-term oversold condition, with the 4 MA of the volume ratio 31 and breadth -1317. You can see on the SPX Standard Deviation channel chart that I have included that the 1538.71 advance was extended short-term to the +2.0 Standard Deviation level. This made a short-term decline the highest probability, and we (Trading Service) took advantage of it, as the SPX declined to 1504.75 yesterday, and we were able to capitalize on the reversal trading strategies.

Unless the TLT sells off again, the 1504.75 SPX low should be the extent of this decline preceding the last 6 trading days into the end of Q2, and 6-month report card. Our ATL (Above The Line) focus list of the significant General's portfolio holdings will do well in any quarter-ending markup. After that is over, put your helmet on, because the PPT (Plunge Protection Team) will have to defend the current major index levels to prevent the downside air pocket.

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.