Same First Hour Strategies At Any Level

The market action turned south after the 10:15 a.m. - 10:20 a.m. ET bar highs for the (SPY | Quote | Chart | News | PowerRating) and (DIA | Quote | Chart | News | PowerRating). The (QQQ | Quote | Chart | News | PowerRating)s hit their highs on the opening bar, and as you know, all three were marked higher into the 4:15 p.m. period on Tuesday. Greenspan and some earnings surprises were obviously not a positive, nor is the focus on oil trying to break out of a trading range for the past 24 years.

The good news is that the early rally was good enough to get all stops on carryover index proxy or (SMH | Quote | Chart | News | PowerRating) positions to well above breakeven and also to ring the register on a percentage of your lower-cost positions. The SPX ($SPX.X | Quote | Chart | News | PowerRating) ran to the 1.0 volatility band level of 1115.93 with an intraday high of 1116.27 before reversing down to a 1093.88 intraday low and close.

The DIA made a 102.55 high just below the 102.64 1.5 volatility band, while the SMH traded up to 33.62 on the opening bar from the 32.90 previous close, so the trailing stop was well into the money. The 1.28 volatility band was 33.70. If you played (INTC | Quote | Chart | News | PowerRating) instead of the SMH, it ran to 23.54 on the first bar, so trailing stops had been moved to above breakeven. The QQQs hit 35.75 vs. the 1.0 volatility band at 35.61 and closed down at 34.40.

NYSE volume expanded to 1.68 billion with the volume ratio 16, as the down volume was 1.4 billion, or almost the same as the average daily volume. Breadth was -1872. The SPX closed at 1093.88, -1.3%, the Dow ($INDU | Quote | Chart | News | PowerRating) 10,046, -1.0%, and the QQQ -2.9%.

In the primary sectors, the SMH led the downside at -3.4% to 31.77, but all of the sectors were strong to the red side. The XBD was -0.8%.

For Active Traders

The QQQ, SPY and DIA all reversed at their 20-day EMAs, and individual volatility band levels. The QQQ re-crossed its 200-day EMA of 35.23 to an intraday low of 34.40 and closing there. It has been above and below the 200-day EMA on five of the last six days and both ways on each day. The SPY hit an intraday low of 109.45, closing at 109.58 vs. the 200-day EMA of 109.88. The 20-day EMA is now 111.80. The DIA after reversing from the 102.55 intraday high closed down at 100.40 vs. the 200-day EMA of 101.09. This market action is good for daytraders, but very difficult for position traders as the market gets kicked around by any bit of news.

Net net, it was a wide-range-bar day for the SPX with significant volume at 1.68 billion shares closing in the bottom of the range and below the 200-day EMA for the very first time since the 1163.23 bull market high on 03/05/04. The previous closing low was 1084.10 and actual low was 1076.32. That's the magnet to be taken out for an RST to set up. The .236 retracement to 769 from 1163 is 1070, and the .382 level is 1012, so they are the primary price action zones if the lows are taken out.

If the Generals should show up on the buy side, the 1094.64 200-day EMA is the first focus, along with the 40-week EMA at 1097. 

Today's Action

I will be traveling Thursday through Monday, so I am doing this after the close on Wednesday and won't see if the early futures continue red. If they do, price will continue to new lows, and that means additional trading opportunities intraday with RSTs and Trap Doors.

The long synthetic straddles obviously continue to prosper as do the index puts vs. the longer-term index proxy positions. The increase in implied volatility, especially for the SMHs and QQQs, has been a bonus to the positions.

Have a good trading day, and I'll see you Tuesday.

Kevin Haggerty