Focus remains on commodity stocks and defensive issues
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head of trading for Fidelity Capital Markets for seven years. Would you like
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The SPX had
rallied to the 1280.19 close last Monday from
the ST-OS condition at the1219.20 low. This put the 4 MA VR at 71 and breadth
+1402, which is a ST/OB condition. The .618 retracement to the 1326.70 SPX high
from 1219.29 is 1285.67, while the 1280.38 intraday high is a .618 retracement
on a percentage basis. There was other symmetry for both the SPX and $INDU
retracements. The SPX hit a 1263.13 low Friday, closing at 1265.48, -0.7% and
-0.3% on the week. The $INDU went out at 11,091, -1.2%, due mostly to the -9.0%
air pocket by 3M
(
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PowerRating) on an earnings warnings. The QQQQ was -1.0% to 37.69
and $COMPX -1.1%, losing 2.0% and 2.8% on the week.
NYSE volume Friday was on the low side at 1.42
billion shares, with the volume ratio 29 and breadth -772. Energy, Brokers,
Semis and Gold led the downside. This week starts with the SPX back to the 1263
– 1254 support zone and the 4 MA VR and breadth back to neutral. However, the
SPX made a new cycle low close on Friday at 31.80 and the QQQQ has been unable
to rally past its declining 377-day EMA at 39.19, with the 200-day EMA at 39.94,
closing Friday at 37.69. The $COMPX rallied to 2190 on this oversold rally, with
the declining 200-day EMA at 2210. Friday’s 2130 close re-crossed the 2159
377-day EMA. All three charts are as about as negative as possible, and it also
means that the highest probability is that the SPX and $INDU will continue to
make lower lows below 1219.29 and 10,699. Standard defensive issues like food,
beverage and tobacco stocks–in addition to certain healthcare stocks–continue
to be the Generals’ choice, and that is a market prediction in itself. The
energy sector continues to be the daytraders’ most important source of daily
opportunities. The recent advance is in conjunction with crude oil ($WTIC)
bouncing off the low end of a trading range and support at 69 to a marginal new
high above 75, closing Friday at 74.09.
Daytraders’ continued focus on certain steel,
copper and gold stocks–in addition to the energy sector–will remain beneficial
The index proxies and HOLDRs are the best way for all but advanced traders to
play the short side in this downtrend. Any so-called "summer rally" that carries
the SPX and $INDU above the current retracement zone will be an outstanding
selling opportunity.
Have a good trading day,
Kevin Haggerty
