Pending Coiled Spring Breakout

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.

Commentary for 11/16/11

The SPX made a new rally high at 1292.66 on 10/27/11 and has sinced formed a 13 day contracted volatility triangle, with the high above both the 200DSMA [1272] and 200DEMA [1237] with the low [1215.42] below the 200DEMA. It is also just below the H&S neckline resistance drawn through the 1249.05 [3/16/11] and 1258.07 [6/16/11] lows.

The SPX made a 1215.42 low [11/1/11] which violated the 1075-1293 trendline and then made a lower high at 1277.55 [11/8], so that set up a potential 123 Lower Top which will be confirmed if the 1215.42 low is taken out. The immediate downside resistance if that occurs is the 1184 .50RT to 1074.77 from 1292.66 and .618RT at 1158. The upside triangle B/O price objective is 1325-1350.

The seasonal pattern is historically strong but Europe is a mess and will get worse, in addition to the fact that it is China`s biggest export market so the European recession will be a significant problem, not to mention the inevitable defaults. The US can`t get out of its own way, our economy is not growing yet, so the Democrats want to increase taxes by more that a $trillion dollars and continue to borrow and spend [how do you think that will work out?].

Headline risk in Europe has the US equity market on a string and certainly
nothing moves the current markets faster than unexpected news, which often errupts with no rational reason and little warning. However, with the exceedinly fast global information pipeline, prices all over the world are affected within minutes of breaking news, and often times the reactions are irrational, but they obviously move price quickly, and when the HFT “gang” gets in the game there is usually instant acceleration, in addition to the news price reaction.

It has been a buy the weakness and sell the strength day trading market, and with the current headline news it is almost a daily occurrence, so stay with the game and always be aware of the symmetry which helps you make so many daily trading decision.

The NYSE volume as been less than 800mm shs for each of the past three days, and the SPX has even formed a Dynamite Triangle pattern within the larger contracted volatility triangle pattern, so the coiled spring is about as tight as it gets, and that means an impending move in either direction.

You can`t trade a quiet market with any kind of consistency, and the tendency is to start scalping, which is very difficult to do with any reasonable degree of success, so my advice is not to do it. When the SPX breaks out of its contracted volatility pattern the trading will obviously pick up.

SPX4A chart

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