Traders Strategy Through Year-End

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.

It was a bell curve in price action last week, as the SPX made the weekly intraday low on Monday (11/12) at 1438.53, hit 1492.14 on Wednesday, and then sold off to a 1443.49 low on Thursday, which also held up on Friday as the SPX traded up from 1444.61 on the 2:35 PM bar to a 1458.74 close (+0.5%) and was also +0.5% on the week. The $INDU was +1.1% on the week, and the QQQQ +0.7%. NYSE volume expanded on Friday with the option expiration activity to 1.76 billion shares. Despite the +0.5% finish for the SPX, the volume ratio was neutral at 53 and breadth -347, so it was mostly the late program action that took the SPX to a +0.5% finish on Friday. The energy, gold and commodity stocks provided the leadership, with the XLE +2.6%, OIH +2.4% and $HUI +1.7%, while the financials led the downside, with the $BKX and $XBD each -0.9%.

The subprime writedowns continue to expand, as we get a higher estimate each day from different pundits about the extent of it. The most recent is the Goldman Sachs chief economist who said he estimated credit losses to now be around $400 billion dollars. Sounds like he's trying to help his firm's supposed short position on that market. When I clean out my spam/bulk email each day, there at least 4 or 5 emails on how to make money on foreclosures. The economy is in a recession, and with the election in 2008, the government will most likely massage the numbers, so their formal definition of a recession wont be announced. But it doesn't take a rocket scientist to look around at the real world, and see the economy tanking in key areas, while prices of food and other necessities continue to rise. The long and short interest rates are declining due to a flight to safety, and the expectations of further increasing economic weakness, in addition to the declining $US Dollar and rising oil prices.

This is a holiday week, in addition to a 1:00 PM NYSE volume on Friday, so the volume will tail off into Wednesday, and the liquidity will be thin on Friday. Last year, only 518 million shares traded on Friday, following the Thanksgiving holiday. The bias following any post-expiration weakness today is up into the holiday, and then the following week there will most likely be some positive month-end price action by the Generals. The second half of December is historically a strong upside bias for the obvious portfolio markup reasons. Traders can capitalize on any weakness today by taking advantage of long-side index opportunities. The Generals will sell their losers into year-end and markup their winners, so daytraders should focus for the next six weeks on the top 40-50 SPX stocks year to date. Strength into year end will be a short opportunity for position traders, and another chance for long-term holders to reduce their equity allocations.

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