Trading Contracted and Expanded Volatility

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 SPX failed to take out the 5-day range high (1453), as it hit 1452.45 on the 9:35 AM bar, then failed again at 1450.45.  After that, it was a trend-down day into the 1433.44 intraday low before closing at 1438.06 (-0.7%).  There was a significant volume increase at the 1-2-3 lower top trend entry below 1447.74, and even more so when the 5-day range low at 1442.81 got taken out.  NYSE volume was the week high at 1.62 billion shares, with the volume ratio 27 and breadth -1301.  All sectors were red, led by the brokers with the $XBD -1.7% and the SMH -1.3%, in spite of the semiconductor upgrade by JP Morgan.  The only green on the week was the $HUI +2.4%, TLT +0.5% and OIH +0.2%.  The SPX daily range Friday was 19 points, and the week's range, 19.6 points.  Contracted volatility, once again, preceded a good move for traders (2/9 commentary). 

Traders should work off the last 2 significant SPX lows at 1416.96 and 1403.97 for retracement levels if there is continued weakness.  For daytraders, that would be about 1428-1430 and 1423-1425.  Also, look for symmetry with the daily Volatility Band levels.  Many of the ATL (Above The Line) stocks have pulled back to their 20 and 50 demas, or have remained in contracted volatility patterns, acting better than the markets, so that is where traders should focus for the bounce back up after Friday's knife down.  The crude oil futures (CL0703) hit 61 Friday before closing at 59.89.  The OIH, which closed at 138.38, remains in its 5-day range between 140.12-136.47, so daytraders should continue to trade any intraday expanded VB's, using mostly Trap Doors, Volatility Bands, RST and 1-2-3's.

This is the 360th week from the 3/24/00 bull market week high, and then 2/23 is calendar day 1597 (Fib) from the 10/10/02 bear market low, so there is time symmetry.  However, the most significant time period for this bull market is March, followed by April, which is the 55th month (Fib) from the10/10/02 769 bear market low.  There is little doubt that traders will benefit from a significant increase in daily volatility during these key time periods.

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.