Short Term Reversal Zone

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 $SPX traded down to the 1349-1326 key price and time zone yesterday with a 1335.47 low and closed at 1335.49. Crude oil advanced over $5.00 on the NYMX and closed at 136.38, after hitting a 138.30 high. The $US Dollar ($DXY) declined -0.5% to 73.26, so based on the current news market that helped accelerate the crude advance, and of course sent the $SPX south to close at 1335.49, or -1.7%, as did the $INDU to 12084. The QQQQ was -2.5%, and is -5.0% in four straight down days. The semis led the Tech decline with the SMH -2.9%, and is -6.9% over the same four days.

NYSE volume was 1.39 billion shares, with the volume ratio 26 and breadth -1998, while the 5RSI is 21. This makes the 4 day MA’s of the internals short term oversold. The $SPX and $INDU are both extended to their 3 month -2.0 STDV bands, and they have declined -7.3%, and -8.1% in 16 trading days to a key price and time zone, so a short term reversal is expected from this zone. The 6/10/08 (+/- 2 days) time symmetry in play is the 2.618 Fib ratio of the 1/23/08 1270 and 3/17/08 1257 lows.

The Financials took it on the chin again with both the $BKX and $XBD finishing -3.6%, while the rising crude prices sent the $TRAN -4.4% on the day. The $BKX continues to make new lows and it was joined by Merrill Lynch (MER | Quote | Chart | News | PowerRating) which made a new low to 35.46 taking out the 3/17/08 previous bear market low of 37. The financials will get worse before they get better, and you can bet that Bernanke’s primary focus is keeping the financial institutions solvent before he backs up his jawboning of the $US with rate increases. It is a recession with inflation, and this is a scenario that most of the money managers in the business have only read about, but have not experienced.

The $US Dollar index future ($DXY) is very strong early, and gold is down while the $SPX futures are +7.0 points at 6:30AM ET, so if this scenario holds through the 9:30AM opening it will probably mean weakness in the energy and materials sectors which will set up intraday reversal strategies for daytraders, and stay with the ones that are extended to volatility band levels.

If you want to learn about the Volatility Bands and other powerful strategies 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

The next commentary is Tuesday 6/16/08.

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!