Wall Street spin cannot stop new major index lows

The SPX had rallied to a 1280.19 close on 7/03/06 from the 1219.29, 6/14/06 low. This S/T OB condition preceded the current five-day decline back to the 200-233 EMA zone, with intraday lows yesterday for the SPX at 1259.65 and 125.94 for the SPY. The SPX 200-233 zone is currently 1261.54 - 1256.54. For the SPY it is 126.25 - 125.73. After the early decline yesterday to these zones--which was also the daily -1.0 volatility band level--the SPX/SPY re-crossed their 200-day EMAs for a trend-up move in the last two hours. The SPX closed at 1272.52, right at the 1273.50 RT to 1326.70 from 1219.29. This five-day pullback sets up a quick move to 1286, which is the .618 RT level. After the KLAC hype about a good quarter, the "Street' will probably get their spin machines out and it will be enough to squeeze some shorts. The spin will be "the worst is already discounted, etc." However, any short-term move in the semis will be greeted with more selling. The SMH (+3.0%) has initial resistance at 33.50 - 34 and declining long-term EMAs at 35.40 - 35.50. Going into yesterday's trading the SMH was the most oversold, with a 5 RSI of 21.9, and then the QQQQ, 28.2, and XLK, 29. Those with a 5 RSI > 70 were the PPH, 81; XLV, 77.5; XLE, 76.3; XLU, 71.4; XLP, 71, and the XAU, 70.3. This clearly highlights the current bear cycle perception by the Generals.

In addition to the major indexes, the best daytrading opportunities yesterday were mostly in energy, gold and healthcare, but that will broaden if they run the SPX to the 1286 zone from this current five-day pullback. The XLE has bounced +16.4% from 50 to 58.21 (7/6/06) in 17 days and closed yesterday at 57.90. The bull cycle high magnet is 60.15, and that could get taken out before a short-term selloff. NYSE volume was not heavy yesterday at 1.57 billion shares, with a VR 55 and breadth +836. The ST-OB condition has worked off, with the 4 MA of VR neutral at 50 and breadth +413. It was mostly energy and semis yesterday, with the OIH 2.9%, XLE +1.8% and the SMH +3.0%. The TLT was +0.3% and has been positive four straight days.

The summer trading will be erratic, with ST-OS rallies that will run into stocks at higher levels and then we will see new lows despite what Wall Street's spin is.

Have a good trading day,

Kevin Haggerty