Sell strength, buy weakness

Kevin Haggerty is the former head of trading for Fidelity Capital Markets. His column is intended for more advanced traders. Kevin has trained thousands of traders over the past decade. If you would like to be trained by him, click here. or call 888-484-8220 ext. 1.

The Generals got the SPX up +2.4% into the October month-end, which was also year end for some major mutual funds. The high on Monday, 10/31, was 1211.43 (12/31/04 close was 1211.92) but it closed at 1207. I would say they did a decent job starting at the 1168 10/13 low and taking the SPX +3.3% in 12 days. The last five days of the month was led by energy, with the XLE +4.6% and the SPX +2% on a closing basis, which is no surprise that the leading 2005 sector got an extra push by the Generals--which was certainly good for daytraders. None of the major players showed up Tuesday as they rested from the October month-end push and whatever artificial manipulation was carried out last week by the Plunge Protection Team (PPT).

The SPX closed Tuesday at 1202.76, -0.4% with a daily range of only 5.7 points, so there was certainly no room for daytraders. The Dow was -0.3% to 10,407 and the QQQQ almost unchanged from Friday's 38.87 close at 38.84. In the sectors, the OIH had another up-day of +1.6%,while the XLE was 0.6%. The XAU was -1.8%, followed by the SMH (SMH | Quote | Chart | News | PowerRating),  -0.7%. NYSE volume was 1.78 billion shares with the volume ratio 41 and breadth -179.

The extended SPX short-term decline to 1168--which was almost to the -3.0 standard deviation zone (3-month)--in addition to the .707 retracement to 1136, gave traders a good short-term long side play. Daytraders also made money selling into the initial major resistance several times. The current resistance is outlined on today's SPX chart. The 1168 level was as oversold as the April 1136 low and that rally ran +9.7% to 1246.

This current oversold move is just +3.7% low-to-high so far and 1215 - 1220 is the major resistance zone that must be taken out for any decent year-end push by the Generals. The energy stocks were a big part of the October mark-up, as many had moves of 10 - 20% in the last 10 days, so caution is warranted right here until there is some pullback.

Have a good trading day,

Kevin Haggerty

The next commentary will be Monday.