Traders Long and Short Sector Focus

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.

Today is the last day of the month, and is an important mark to the mark for many hedge funds and generals that have had a tough August. The President speaks this morning on the subprime problem, and many expect him to just wave a wand and make it go away. It will be another one of these "expand the government role" deals. Bernanke is having a few pops in Jackson Hole, Wyoming at a conference, and will speak on the current credit problems. The market expects a rate cut, but hey, didn't the "funny money" economic numbers that seem to change each month to fit the crisis say 4.0% GDP? Is that just to tricky Ben could pass on a rate cut, because the more significant problem is a potential selloff in the $US Dollar, which will tank both the equity bond markets, not to mention home values, which were declining long before the subprime or credit conference prices. We will let the economists figure this one out, seeing that they did so well in 2000, when 95% of the economists surveyed said there wasn't a chance in hell for a recession because "this time is different." Right. Thanks for the help, academics.

Today's show is about to begin with Bernanke, Bush and month-end playing the lead roles, so why should we be surprised that the SPX futures are +17 points as of 7:15 AM Eastern time. Maybe the stage crew is the PPT (Plunge Protection Team), which is overpaid and definitely overworked recently, based on the recent market fluctuations. They undoubtedly get some help from trigger-happy buy side traders that keep their finger on the algorithm buttons, and chase price after every bit of perceived good news. The process obviously works in most directions, and is also accelerated by the mostly electronic execution process, that is a dismal failure in fast markets, and has increased volatility significantly. You don't hear the empty suits on CNBC criticizing daytraders for the volatility anymore, but they have their head in the sand about pointing out the real facts about the unusual market fluctuations. Net-net, if the powers can be can spin the current situation into a soft landing like 1994, it will be one hell of an accomplishment. However, I favor the other side of that bet, that the 1370.60 low will get taken out before this cycle is market history, regardless of whether it is a soft or hard landing.

From a daytrading standpoint, the extreme volatility has been a windfall for the extended volatility strategies, like RST's, Trap Doors and 1-2-3's. The primary focus on energy stocks, multinationals, index proxies and ETFs has been extremely succesful on a daily basis. The short-side focus on financials, brokers, retail sectors, transportation and homebuilders remains intact, but the best timing is on pullbacks to declining ema's on the short side, just as it is on Above the Line stocks to rising ema's. These are also the best entry situations in these kind of markets for short-term position traders. As for you longer-term investors, who are "buy and hold till death do you part," you were forewarned long before subprime about the negative risk/reward of the current bull cycle, so I hope you made some allocation adjustments.

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.

Have a good trading day,
Kevin Haggerty