Chart is fact, media is fiction

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. 

The market action was weak relative to month-end and the Generals were nowhere to be found on the buy side yesterday after the first hour. The SPX closed at 1239.20, -0.9%, and went trend-down from 10 am into the close. The intraday high of 1253.37 pushed the 1254 -1263 resistance zone for the eighth time in the last nine days. The $INDU was -1.1% to 10,925, and just like the SPX, has still failed to trade through their .382 retracement levels to the May bull cycle highs. NYSE volume was 1.55 billion shares, volume ratio 21 and breadth -1410. All primary sectors closed in the minus side. Technology continued to head South, with the QQQQ and SMH each -1.9%, while the $COMP was -1.1% and has the worst daily chart of all the major daily indices after making a bull cycle double top at the 2375 level. The QQQQ (NDX 100) topped out on 1/11/06 at 43.31, while the $COMP topped out in April. Both indices have significantly declining 200-233-day EMAs and both are also below their 377-day EMAs, which is where the SPX and $INDU reversed on 6/14/06. Both the $COMPX and QQQQ are what I call "BTL" indices (below the line), where price < 20 < 50 < 200 (see charts). The housing stocks (HGX | Quote | Chart | News | PowerRating), Retail (RTH | Quote | Chart | News | PowerRating) and Semis (SMH | Quote | Chart | News | PowerRating) are all BTL indices along with the TLT (long bond proxy). What is wrong with this picture? Nothing, if you continue to listen to the empty suits on TV and the other shills they drag on their shows every day, which are there for one purpose: "good forecasts sell stocks, bad ones don't." Any significant oversold rally in these BTL indices is another selling opportunity, as it will be for the SPX and $INDU on retests of their May highs.

The media's standard format calls for them to start hyping a summer rally now, especially if the Fed indicates any backing off and acknowledges that the consumer is severely wounded and/or they start to panic that they can't engineer a soft landing. With midterm elections coming in November, I doubt they'll acknowledge the obvious negatives in the economy right now. They certainly won't tell you to keep your powder dry because you will be able to buy the SPX at 1050 or below some time in the last quarter of 2006 through March 2007.

July and August are not the best months for traders, so be prepared to trade less and only select the clearly defined opportunities. Friday is month-end, followed by the early NYSE 1:00 PM closing on Monday preceding the July 4 holiday. The Generals, helped by some short covering, will probably still close the SPX above the 2005 closing price of 1248.29.

Have a good trading day,

Kevin Haggerty