6-Month Markup Pending

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Another key time period kicked in as week 377 (Fib) from the 3/24/00 SPX 1552.87 high saw the SPX go from the 1487.41 low on 6/8/07 to the 1532.91 close on Friday. The leadership was energy with the OIH +6.1% and XLE +4.5% last week, while the SPX was +1.6% from the 6/8 1507.67 close. The expectation was that last week would close higher than the week ending 6/8 due to the short-term oversold condition, triple-witch expiration, and week 377 time period. The market has gone from the most oversold condition since March to the most overbought in 6 trading days (volume ratio and breadth, not momentum). There is no short-term trading edge starting the week, based on those internals. However, any oversold pullback will probably be small because there are just 10 trading days left for the Generals in the quarter, and that is even more important now that it is the 6-month performance numbers in play. You can bet that they will manipulate it to their advantage. I look at as "if they can, they will." The primary negative to prevent the markup is more selling of $US Bonds by foreigners (or lack of buying). It is not because of the spin doctors' reasoning that the U.S. economy is taking off, because it "ain't."

The 3-day pop in the major indexes has left the market short-term overbought. The 3-day MA of the volume ratio for this spurt is 79 and breadth +1672. NYSE volume expanded to 2.0 billion shares on triple-witch Friday, with the volume ratio 80 and breadth +1894. The TLT was +0.7% and was +1.6% for the 3 days on the oversold bounce. Despite the 3-day spike, it was not that trader friendly, because of the significant gap-up openings each day. On Wednesday, the SPX hit 1504.54 on the 10:40 AM bar, and the +1.0 Volatility Band zone. But the contra move short was only to 1497.83 before the 2 PM spike under the cover of the Fed Beige Book's "continued growth and lower inflation" statement. Thursday (SPX +0.5%) and Friday (+0.6%) had big gap-up opening periods, but drifted lower into the close each day. On Thursday the SPX hit its intraday high of 1526.45 on the 10:40 AM bar, and the contra move from this +1.0 Volatility Band went to 1519.30 before closing at 1522.98. Friday was even a bigger gap-up opening, as the SPX hit the intraday high of 1538.71 on the "you guessed it" 10:45 AM bar. The +1.0 Volatility Band was 1538.05, and the contra short move was only to 1531.77 before closing at 1532.91.

Net-net, the move was excellent for the short-term oversold position trade in a key time period, but not nearly as good for the day trader, other than the contra move shorts each day from the +1.0 Volatility Band zone if you were trading the SPX (futures or SPY). The key levels and strategy in play for the SPX if the 1540.56 cycle high gets taken out are posted in the trading service, and you can view them with a free trial.

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.