Stock and Bond Markets on a Collision Course
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 SPX made a 1080.15 high on the 9/23 key time date, and then declined -5.6% to 1019.95 on 10/2, at the 50DEMA zone. The USD (US Dollar Index) made a 75.83 low in 9/23 and advanced to 77.47 on 10/2. The SPX has since advanced +7.5% to a new high at 1096.56 from the 10/2 low, while the USD has declined from the 10/2 77.47 high, to a new low yesterday at 75.21. My thoughts on how this USD/equity market correlation will end is outlined in my previous commentary for 10/13. The stock market and bond market are on a collision course, and the outcome will be decided by the $US Dollar.
The SPX has advanced 8 of the last 9 days accelerated by the $US Dollar. The market gets pushed higher despite the fact that mutual fund cash is less than 5.0% of holdings, which is almost where it was in Oct 2007 when the bull cycle ended. Certain sentiment indicators are also approaching the OCT 2007 levels. The rally has persisted despite significantly lower volume, and most of recent SPX advance has been because of gap up openings due to a declining dollar and rising commodities before the 9:30 AM opening. After these gaps the major indexes have mostly traded sideways for most of the day.
The earnings season hype by the empty suits at CNBC is in full swing, and you get the regular knee jerk reactions like there was with
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The SPX is now essentially in the 1121 .50RT zone to 1576 from 667, so let the buyers keep your hands in your pocket and let those of you that bought the market at a favorable average cost take some money off the table (see the 10/13 commentary).
Have a good trading day!
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