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From 1990 to 1997, Kevin Haggerty served as Senior Vice President for Equity Trading at Fidelity Capital Markets, Boston, a division of Fidelity Investments. He was responsible for all U.S. institutional Listed, OTC and Option trading in addition to all major Exchange Floor Executions. For a free trial to Kevin’s Daily Trading Report, please click here.
10/15/08 COMMENTARY
The previous commentary was Friday, 10/10/08, which was the anniversary of the 10/10/02 768 bear market low. I had said that the rate cut must show immediate improvement in the credit markets, or else there would be another sharp leg down due to liquidations, margin calls, and mutual fund redemptions, in addition the prime brokers forcing the hedge funds to deleverage further.
That expected sharp leg down was Friday as the SPX hit an intraday panic low at 839.80, before rallying to close at 899.92, or -1.2% on the day, with the NYSE volume expanding to 2.93 bill shs. It was the 8th straight down day for the SPX which was -25.2% for that stretch, and -46.7% for this bear market from the 10/11/07 1576 top, which actually made Friday a double anniversary because the 11th fell on Saturday, coincidence? Maybe, but they happen all the time, so price and time symmetry are an essential part of my "Core Trading Framework". The SPX finished the week -18.2%, while the OIH was -34.4, XBD -28, XLE -27.3, and the BKX -22.6 to name those >20.
The U.S. market exploded Monday on the heels of the European bank nationalization plan, and a similar plan expected to be announced by the "Paulson Hedge Fund" on Tuesday. The short story is that the government will make a list of major banks accept parts of $250 bill in exchange for an equity stake, and lend the money quickly to customers in order to end the credit freeze that has continued to worsen. However, he and the President said that what is actually a Bank Nationalization is only a temporary socialist solution that they oppose, but is needed to preserve the capitalist system. With the "Left" favored to sweep the election, you can bet it is not temporary, and the regulation will be stifling until the Socialists can be thrown out of office. There are other parts of the initiative guarantees by the FDIC etc., that should help calm the credit market down, but "show me I am from Missouri."
The SPX was +11.6% on Monday as all the major indexes were >11%. The MS deal was completed over the weekend, and it finished +86% on the day, which sent the XBD to +19.1, while the OIH was +21.8, and XLE +16.5. Yesterday, the SPX finished at 998 (-0.5) on the day, which was positive relative to the +11.6 surge on Monday. In the previous commentary, I said that I expected a significant low this month, followed by a sharp rally. The SPX advanced +24.3% from the 839.80 Friday low, to the 1044.31 intraday high yesterday. I also said that if the 769 low (10/10/02) was taken out this month before the rally, that the probability of a bear market bottom is obviously much higher, and if it didn't, than the 769 low is still the magnet in play, with a lesser probability for a double or 123 higher bottom. There is still plenty of time left in the month for that to happen. Equity allocation has been increased on the decline as planned.
The day trading game plan in the "trading service" yesterday was to sell any extended VB level Trap Doors, and that is exactly what we did for a very positive day. The SPY, DIA, and OIH all reversed from the +1.5 VB levels after the gap up openings which was a bonus for traders anticipating the play. The IYF reversed from the +2.0 VB, which was also an excellent Trap Door 1st hour reversal. You can see these strategy trades from yesterday with a free trial to the trading service, which you can access from this commentary.
The equity market is a total captive to the credit market following the new initiative, and right now the SPX futures are -27 and INDU futures -220 as I complete this at 8:30AM
Have a good trading day
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