Use These Reversal Strategies

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 market action was ugly last week as the SPX closed at 1264.68 on 01/25/06, rallied to 1287.94 on 01/30/06, and closed Friday at 1264.03. That took the air out of the "last 2 days, first-three-days-of-the-new-month seasonality." The SPX was -0.5% on Friday, -1.4% on the week and is -2.4% off the 01/11/06 1294.90 high. The QQQQ closed Friday -5.5% off the 01/11/06, 43.31 high at 40.92 and -2.7% on the week.. The semis, cyclicals and banks led the downside last week, with the SMH -2.4%, CYC -2.4% and BKX, -2.3%. The TLT was +0.7% on Friday and the same for the week. Commodities and related stocks continue to lead and are also the best area of concentration for daytraders.

On Friday, the SPY/futures Trap Door off the 10:00 AM signal bar and 126.14 low ran to 127.15 before reversing to close at 126.27. Initial exit was after the 126.89 swing point high at resistance. NYSE volume averaged 1.83 billion shares last week, which is on the heavy side, with 1.7 billion shares on Friday. The volume ratio was 35 and breadth -685. The 4 MA volume ratio was 40, down from 62 the previous Friday when the SPX closed at 1283.72. The 4 MA of breadth is -351 and the 5 RSI for the SPX is 30.31, so there is more downside room before a short-term oversold condition.

The inefficiencies created by the earnings season hype and the off-the-wall interpretation of each economic number is very trader friendly to the different reversal strategies, such as Trap Doors, RSTs and 1,2,3s, especially when used in conjunction with the volatility bands, which are incorporated in the new trading service. These strategies are also available in the trading modules and Trading With the Generals seminar material.

Have a good trading day,

Kevin Haggerty