Month-End Markup with Negative Divergences

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The SPX was +0.6% on Friday, closing at 1515.73, but was -0.4% on the week, as the Memorial Day bias proved negative, unlike the previous 3 years. The $INDU finished the week -0.3%, with the QQQQ -0.8% and the $COMPX -0.7%. The SPX all-time closing high is 1527.35 (3/23/00), and the index churned in this high zone for the first 4 days last week, as the high traded between 1532.43-1529.31. Friday was a light trading day, as the NYSE volume declined to 1.2 billion shares, but the volume ratio was positive at 74, and breadth +1316. The semis led the downside on the week, as the SMH was -2.4%, and closed at 36.26. It had broken out of a 9-month trading range, with a 35.95 high, and then traded to 38.35 on 5/14/07. The intraday low on Thursday was 35.89, so if there are any real buyers, they will be active at current levels. The 50-day ema is 36.15. After hitting a new 173.15 high, the OIH pulled back to minor support, with a 164.73 low, but had a gap-up day on Friday, closing at 168.10. When it gaps up, and then goes sideways with no pullback, that is obviously not a trader-friendly day.

Long interest rates continue to go higher, as the TLT declined for the 3rd straight week, and the long bond yield ($TYX) closed above 5% Friday at 5.08%, after hitting a 50.51 high on Thursday. The previous high this year was in January, at 50.21. The $HUI (gold index) was -1.9% last week, and has been declining since the 4/16/07 369.70 high. At the same time, the $US dollar is making a short-term base above 81, and closed Friday at 82.36. The recent $US dollar low was 81.25 on 5/1/07, and started trading below 82 on 4/13/07. The Federal Reserve continues to jaw-bone inflation, while at the same time expanding the money supply at double digit rates.

We have the last 3 days of the month this week, and in a primary uptrend, the expected bias is up, in addition to the first few days of the month. However, there are obvious negative momentum and money flow divergences, as the SPX extended rally is now 52 trading days old off the 1364 3/14/07 low. The 1532.43 high was made on day 49 (natural square number) which was last Wednesday. It is just a question of whether "they" can take out the 1552.87 3/24/00 high before or after the next decline starts. The current technical condition favors daytraders.

Have a good trading day,
Kevin Haggerty

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