The Odds for a Wave 5 Completion From 665-602
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.
The anticipated March reversal from the key price and time zone and a very extended O/S condition has gained +12.9% (low to high) in 4 days from the 3/6 666.79 low. The key long term price zone is 665-605, and the SPX made a 666.79 low last Friday (3/6) on the 3:05 PM bar which set up the RST strategy, so position traders got an early entry as the SPX closed at 683.38, and day traders were happy. There was also key time symmetry last week, in addition to positive divergences in momentum, implied volatility, and NYSE lows. If this is a first read for you then review my last 3 commentaries on the TradingMarkets site from 3/4, 3/6, and 3/10.
The technical condition was such that even the continued blunders in Washington would not prevent a short term technical reversal from such a key zone. The SPX, led by the financials, was +6.4% on Tuesday as Bernanke said that the recession could end this year if the planets aligned, and babbling Barney Frank also mentioned that the uptick rule might come back, in addition to a statement that something has to be done to improve the mark to market rule, which has accelerated the capital problems at the major financial institutions.
However, there is still no specific plan to address the toxic assets as Geithner was supposed to do on 2/10/09, per Obama, and when Geithner came up zero the SPX went -4.9% that day, and -23.3% to the 666.79 low last Friday. The decline accelerated each time Obama opened his mouth about the initial spending bill and budget proposal, followed by the omnibus bill. He is spending trillions of dollars for social engineering, but lacks a plan for the primary problem facing the economy, and solvency of financial institutions. However, the White House said the plan for toxic assets would be announced “within weeks”, but don’t hold your breath based on what has come out of Washington so far.
The SPX has trading range resistance at the 805 level, which is also the .50RT to 944 from 667. That would be a +20% gain, and we have had 3 previous reversals of +20% or more, so there is no reason from a technical standpoint not to expect at least that on this move. However, you can’t know the extent or duration of a move, but you can identify high probability reversal or acceleration zones, which we did at the 665 key price zone. Based on what Washington is doing (and not doing) the odds are no better than 50-50 that the SPX won’t trade down to the lower end of that 665-602 key price zone to complete Wave 5 of this bear market.
Next week has some key time symmetry from the 10/11/07 SPX 1576 bull market top, so heads up for the pullback, and protect your current short term trading position if you played that 665 price zone.
Have a good trading day!
Click here to find full details on Kevin’s courses including Trading with the Generals with over 20 hours of professional market strategies. And for a free trial to Kevin’s daily trading service, click here.