Negative Intermarket Relationship for Equities

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.

A weak $US Dollar and rising oil prices usually boost the demand for gold, and that is what we see right now. The $US Dollar took out the 10-year 80.39 low on an intraday basis this week, and closed yesterday at 80.47. Crude oil ($WTIC) made another new high yesterday at 76.07 since breaking out of the trading range above 67.10 and is challenging the 79.86 high made on the advance from a 10.35 1998 low. Gold has broken out of a correction from 698 to 641.10 on 6/27/07 and closed yesterday at 678.10. The $HUI made a new 52-week high yesterday, closing at 371.11, so net, net, the intermarket relationship is in sequence. The sector leadership the past 2 days is energy, with the OIH +3.6%, XLE +3.2% and $HUI +3.1%, while the SPX is +0.3% and +0.1% on the week so far. The primary daytrading focus on energy and technology has been spot on. The technology seasonality in play the last 4 years is in gear, and both these sectors are carrying the SPX.

The SPX made a new cycle high close yesterday at 1553.08 (+0.5%), as did the $INDU (+0.6%) at 14000. About 65% of the SPX stocks have had multiple lowered earnings estimates for the 2nd quarter, but as we have seen over the last couple of days, the "better than expected" reports of multiple lowered estimates still moves the stocks higher because the "game" is still on. NYSE volume was 1.5 billion shares yesterday, with the volume ratio 60 and breadth +823, which is on the weak side relative to the new market cycle high closes by the $SPX and $INDU. The volume ratios for the first 3 days this week were only 35, 41 and 38, while breadth was -1172, -510 and -881. These weak internals relative to the major index levels have not come into play yet, but they very well might next week following the expiration. Daytraders that have focused on t he energy sector are happy traders this week because of all the RST opportunities that develop due to the excellent intraday volatility, and this will continue.

The negative implications of the intermarket relationships between the $US Dollar, crude oil and gold will weigh heavily on the equity market going forward, as well as the spreading subprime problem, slowing economy and a housing market that just continues to get weaker. This is probably good news for the daytrader, because the intraday volatility will be excellent, as the "good news/bad news" reaction swings increase substantially.

Have a good trading day,
Kevin Haggerty

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