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 11/5/10
Bernanke made the QE2 statement on 11/3 and said that the Fed is planning to purchase $600 bill in Treasuries [75 bill per month] through the end of Q2 2011. It wasn’t a question of if they would act, only how much. The SPX was +0.4 the day after the expected Republican win in the House and Bernanke’s statement on the $600 bill QE2.
However, yesterday [11/4] the USD made new lows before the US markets opened, by taking out the previous significant low at 76.19, and that sent stocks and commodities sharply higher, which obviously resulted in a big gap up NYSE opening. Gold was already +$40 before the NYSE market opened. There was also a news flash during the morning that Obama was open to extending the tax cuts to everyone, so that was significant.
However, they should even be lowering the existing Bush tax rates, keeping the 15% capital gains rate, and lowering the corporate tax rate so it is competitive with the other countries. If they did that, and where the US dollar is right now, the economy would jump start and foreign capital would scramble to invest in the US, and the jobs rate would improve quickly, and help stop the borrowing and improve the Obama induced Deficit. However, it will be a cold day in hell that Obama, or any of the politicians in Washington [both parties], would have the stones to make that kind of a decision.
The austerity measures that the IMF is pushing now on the inevitable sovereign debt default countries in Europe are the same measures that caused the great depression, and it will again to the US if we attempt the same thing. Remember, there was a balanced budget in the US during the depression. That sure helped a lot??? We have to grow our way out of this, and cut the borrowing to a minimum because the interest cost is the greatest wealth distribution of all time.
The Fed continues to manipulate the equity market higher, push the USD down [devalue by design], which in turn sends stocks and commodities sharply higher. The market is extremely extended, but it can remain that way longer than shorts can remain solvent. We have a federal agency manipulating the equity and bond markets as a result of the Primary Open Market Operations [POMO], so the US is now no better than Zimbabwe.
The empty suits on CNBC and the rest of the media drones will always give fundamental and economic reasons why the market continues to advance [after the fact], but the reality is that almost all of this rally has been on active POMO days, and it has done zip on the other days. I have included a chart sent to me of the market performance as of 10/28 on the active POMO days, versus the non-POMO days, so let there be no question why this market defies gravity. FYI: Nov 1 and Nov 4 were also POMO days, and the SPX was +.09 and +1.9 on those days.
The hedge funds are mostly using ETFs to play the short side, or to hedge positions, and it doesn’t make much sense for the swing trader to short this market in front of the Fed, and the Generals are certainly not selling much of anything without buying something else, or changing allocations, so until the price action changes just ride the train.
The SPX and INDU took out the 4/26 highs yesterday, as did the NYA, MDY, COMPX, TRAN, while the USD hit new lows and Gold hit new highs. The next SPX zone with price symmetry is 1229-1250
The Fed did QE1 and there was no tangible results, so now they are doing QE2 which seems to be an act of desperation, because they wouldn’t be doing it unless the reality was more negative than we are aware of, but you wouldn’t know that based on how the pundits are rationalizing the market and the economy.
After listening to Obama yesterday, my take is that he appears to be in almost total denial, so it will be a tough road the next two years, and controlling the House might slow it down, but it won’t reverse the hole we are in. I expect another significant down market cycle starting sometime in 2011.
Have a good trading day!
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