Rate Cut, Option Expiration Plus Time Symmetry Equals Volatility This Week

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 the week +2.1% to 1484.25, as the rally coincided with General Petraeus' 2-day testimony on Monday and Tuesday, and in front of the President's address to the nation speech on Thursday. It was another one of those highly correlated coincidences I refereed to in the previous commentary. The rally from 1439.29 intraday low on Monday to the 1484.25 Friday close was on declining volume each day, from the 1.34 billion shares on Monday. NYSE volume was just 1.2 billion shares on Friday ,with the volume ratio 56 and breadth +316. The most oversold sectors led the upside last week, with the $XBD +4.6%, RTH +3.9% and $BKX +2.6%. Energy and gold were also leaders, with the XLE +3.1% and the $HUI +2.0%.

A Fed rate cut in the Fed funds rate is widely expected on Tuesday, and the initial reaction will probably be a quick spike up in the futures. The $US Dollar closed at 79.65, and the most significant factor is what the reaction will be to a rate cut of .50 basis points as some are expecting. Any $US Dollar selloff that takes out the 78.19 1992 low will obviously be very detrimental to the equity market, while gold and commodity prices will continue to rise. This coming week is also a triple-witch expiration, in addition to having some primary long term time symmetry measured from the 769 10/2/02 bear market low, and also a measured ratio of the 1998-2002 bear market lows. This all adds up to what should be a very active daytrading week in the major indexes and ETFs. The primary individual stock focus should be on the blue chip multinational stocks, and also the energy, commodity and bigger technology growth stocks. One way of the other, the SPX and $INDU will break out of their current 10-day trading ranges, which is about 13500-13000 for the $INDU, and 1490-1439 for the SPX.

It has been a blue chip rally on declining volume since the SPX 1370.60 8/16 low, which makes a retest of that low the higher probability, even after any rate-cut rally.

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Have a good trading day,
Kevin Haggerty