Trade the Reaction to the News, Not the News Itself

From 1990 to 1997, Kevin Haggerty served as Senior Vice President for Equity Trading at Fidelity Capital Markets, Boston, a division of Fidelity Investments. He was responsible for all U.S. institutional Listed,OTC and Option trading in addition to all major Exchange Floor Executions. Mr. Haggerty is a co-founder of Tradingmarkets.com and is the founder of www.KevinHaggerty.com.

The "Generals" were true to form last week and the anticipated mark-up resulted in 4 straight up days and +1.7% for the shortened week. In the previous commentary, I said that this week had key time symmetry, and as a result of the mark-up there was also key price symmetry starting this week.

The $SPX price symmetry is the 200DEMA at 1405.85, and the .50RT to 1440.24 from the 1373.07 low (5/27) at 1406.65 The H&S neckline from 1576 is also 1406. There will be a short term change in trend if the 123 Lower Top is confirmed below 1373.07, and the next $SPX price symmetry is in the 1349, and 1327 zones.

This week started with a -1.1% decline by the $SPX on NYSE volume of 1.17 billion shares. The volume ratio (Adv Vol /Adv Vol +Dec Vol) was just 23, and breadth -1168. Yesterday was a -2.0 Volatility Band (1377.63) decline with an intraday low of 1377.79, and then rallied to 1387.53 before closing at 1385.67. Members of the trading service familiar with how to use the VB levels and strategy were able to take advantage of the afternoon rally. There is a Volatility Band section in the Service which explains the use of the VB's, and also individual VB screens for the $SPX, $INDU, NDX 100, and major ETF's. This is all available to free trial users.

You can take a free trial to the trading service by calling 888-484-8200 (Ext 1 Sales) or by going to www.kevinhaggerty.com

Almost every $SPX -2.0 VB move has occurred when there is "derivative meltdown" news, and the Financials lead as they did yesterday, with the $BKX making a new bear market low close. The major brokers, and certain banks were down graded again yesterday, and the debt ratings were lowered for some major investment banks. This news accelerated the $SPX to the downside on the 12:30PM bar from 1387 to the 1377.79 intraday low, and that gave us the opportunity to play the long side from the -2.0 VB zone. It is much more profitable trading the reactions to the news, rather than the news itself. The financials make up about 20% of the $SPX, so there can be no sustained rally with this sector under pressure.

The next commentary is Thursday 6/5/08. Have a good trading day!

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.