March Technical Reversal Despite Washington Blunders
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 has declined 5 straight days, and made a new low and cycle close yesterday at 692.23, and 696.33. In fact, the market has been in a free fall of -21.3%, high to low, ever since the Geithner “No Specifics” speech on 2/10/09, which was followed up by the two “Pork Bills”, a crippling Budget proposal, in addition to the Universal Health Care proposal (socialized medicine). Obviously, the market has not responded well to the proposals for a new socialistic society.
However, as anticipated in the “Trading Service”, the price, time, and momentum symmetry pointed to March lows, followed by a significant technical reversal. Both 3/2, and 3/3, had significant time symmetry measured from the 1974 bear market low, and yesterday was also the 2.236 Fib Ratio of the 10/10/08, and 11/21/08 lows (840-741). All time symmetry is in play for +/- 2 days. Also, there was price and time symmetry yesterday based on the last leg up from 741-944, which was +203 points in 29 days. The time Fib extension of that leg was 3/2 (1.272 x 29 =’s 37) trading days =’s 3/2, and the SPX was -4.7 with a 699.70 low. The same 1.272 fib extension in price of the +203 point leg is 686, and the SPX made a 692.33 low yesterday, so both price and time were in sync. There is also significant SPX .618 RT price symmetry to the 1982, 1974, and 1932 bear market lows from 665 to 605, so the market has entered a very strong technical bottoming zone.
Volatility has declined significantly relative to the “panic stage”, when the SPX closed at 752.44 on 11/20/08, and the SPX implied volatility I use for the Volatility Bands in the Trading Service closed at 74.17. Last night the SPX closed at 696.33, and the IV was only 46.65, so that is a very positive divergence pointing to a reversal bounce.
The leadership in the next bounce will probably be the Techs, and Energy, because Obama has taken down two key sectors over the last 10 days. The socialized medicine proposal has taken most of the Drug, Medical, and Bio-Tech stocks down over -20% for the last week to 10 days. The same is true for the Defense Sector, where “they” propose to cut spending by 25% or more. The market is set up for a sharp short squeeze from a key price, time, and momentum zone.
Have a good trading day!
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