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 10/01/10
The SPX was +8.8% in September, which makes it the best September in over 70 years according to the trivia buffs. The SPX was +10.7% for the 3rd QTR, yet the institutional equity volume was down 30%-50% on the major trading desks. The economic news was mainly on the negative side, and yet September was +8.8%, which obviously made the QTR.
There is one school of thought that thinks the market was accelerated with the help of the PPT as the Fed would buy Treasuries from the banks, and the banks would then put it into the market and accelerate the futures and the buy programs, because it would trigger the algorithms [PPT]. The amount was about $6 bill per day when it was active. It makes some sense because the institutions were not very active in the market as evidenced by the major brokerage firms significant drop off in volume. Most all of the gains were at the opening and the last hour or so.
We anticipated that the rally would start in the 8/27-8/30 key time zone, and the market was also very ST-O/B at the time, having declined 7.9% from the 8/9 1129.24 high in 14 days. I expected the rally to run at most to the 1100-1106 initial resistance zone, and then resume its decline into the Sept/Oct period. However, the rally was extended and hit the 1140 .618RT zone to 1219.80 from the 1010.91 7/1/10 low, and then declined to 1122.79 from the 1148.59 interday day, and the 1142.71 high close on 9/20.
It was technically positive that the SPX took out the 1131.23 6/21 high and the 1129.24 8/9 high, so that is now initial support as the SPX has traded up to the high close of this rally at 1148.67 on 9/24. The key price zone was 1140-1151, which is the .618RT through the 1150.45 1/19/10 high. The SPX has only traded once through the 1150.45 high, and that was yesterday on the gap up opening and 1157.16 interday high after the “nonsense” economic reports.
However, the SPX immediately reversed the 1157.16 high, which was an RST short setup, and traded down to the 1136.08 intraday low, and closed at 1141.20. Trading service members jumped right on the RST short setup and took a nice chop out of the market yesterday by taking advantage of the emotional reaction to the reports, but there were also some stops taken out above the 1150.45 high which triggered some short covering.
There was some price symmetry at the 1157.16 high, and service members were alerted to that symmetry well in advance, so it made it easy to take the RST short. The AB=CD measurement was 1158, while 1158.67 is the .707RT to 1219.80 from 1010.91, and 1159.95 is the 45 degree angle measured from 1010.91. The AB leg is the 7/1-8/9 rally, and the CD leg started on 8/27 with the 1039.70 low.
The mid term election rally has only been down 1out of the last 34 and usually starts at the end of September and runs through the New Year. However, whether it was the PPT rally or not, it certainly got a head start this time, but so did the perception that the Democrats would lose the house.
The market is very O/B after the 23 day vertical SPX rally, and the decline in the US Dollar has been a major factor in the gain of Stocks and Commodities, so any reversal in the USD will be a catalyst for the pullback during October, after the first few days of October new money chasing performance.
Have a good trading day!
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