Reactionary Trading Market for Daytraders

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.

"They" tried to close the SPX and $INDU green yesterday for the sixth straight day, after the futures-induced discount opening period, but fell just short as the SPX finished at 1507.72 -0.1%, and the $INDU -3.9 points (-.03%) to 13309. The SPX intraday low was 1500.66 on the 10:10 AM bar, and the $INDU reversed 71 points from 13238. The reversal off the morning lows almost got the indexes to the plus side, but the internals remained negative all day, as the volume ratio finished at 39 and breadth -602. NYSE volume was 1.5 billion shares. It was a weak reversal, with almost all the major sectors underperforming the SPX, but nevertheless, price is price.

The discount opening was a bonus for daytraders, as it usually is when it is initiated by the pre-9:30 AM futures activity and the illiquid Globex market. The -1.0 Volatility Band for the SPX yesterday was 1500.31, and the SPX rallied from the 1500.66 low to 1508.36 before closing at 1507.72. However, the better trade setup was the IWM Trap Door following the 81.54 10:10 AM low signal bar, with entry above 81.60, versus the -1.28 Volatility Band at 81.61. It traded up to 82.55 before closing at 82.29 (see chart). This strategy and more are included in the 1st Hour trading modules. There were similar Volatility Band opportunities in the OIH, XLE and many of their component stocks. The OIH had declined from 164.08 on Friday to a 157.12 low yesterday between the -1.28 (157.45) and -1.5 (156.95) Volatility Bands, which set up the Trap Door trades.

The market continues on in its bubble, ignoring the slow growth recession accompanied with inflation, as the Fed continues to pump liquidity into the system at double-digit rates, which has been a major factor in the continuation of this bull cycle. The FOMC statement today will try to keep everybody happy, but what else can they do? They can hardly raise rates to contain inflation when the economy is heading south, or lower rates to help the slowing economy, which is inflationary and will just put more pressure on a $US dollar now at dangerously historical low levels. The Fed's biggest worry has to be foreign investors unloading the dollar and selling US dollar-denominated assets, because then they will have to raise rates to protect the dollar, and that will put even more pressure on the slowing economy. Odds are they will just keep pumping liquidity into the system in front of the 2008 presidential elections to postpone the inevitable, as Bernanke was put in by the Republicans.

Reactionary trading continues to be more beneficial to daytraders than initiated trading, and I don't see that changing in the current market environment. The best opportunities are mostly in the first hour, and then the afternoon action in the frequent 2 PM and 2:30 PM program periods. The most productive sector for daytraders is still energy, with its high average implied volatility for most of the stocks and ETFs.

Have a good trading day,
Kevin Haggerty

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.