Indictment brings in Plunge Protection Team to buy
The market loved the
Bernanke appointment (Monday news) as the incoming Fed Chairman so
much that the SPX is now -1.7% with three straight down days following the +1.7%
close on Monday. The SPX has failed at the 1201 resistance on both Tuesday and
Wednesday, which made smart daytraders happy with 9-10 point reversals to the
downside both days. The SPX went out yesterday at 1178.90, -1.1%, Dow, 10,230,Â
-1.1%, while the QQQQ closed at 38.03, -2.0% and Nasdaq, -1.7% to 2064. NYSE
volume was 1.78 billion shares, with the volume ratio of just 19 (1.43 billion
down) and breadth -1183. Selling into the major resistance for both the SPX and
Dow has been very profitable for us as it was expected that sellers would return
at the resistance zone after the air pocket down to 1168.20.
The SPX is once again below its longer-term
moving averages, with the 200-day EMA now 1195.33 and 233-day EMA, 1190.47 The
Dow, which went out at 10,230, has overhead resistance at 10,350, with the
200-day EMA at 10,448 and 233-day EMA at 10,434. The rising SPX bearish wedge
(weekly chart) and bearish MACD negative divergence is a technical condition
that is not investor friendly, especially with both long and short interest
rates well above their 200-day EMAs, while the SPX remains below its 200-day EMA
which historically is a very high-risk market condition. It looks as if these
rates have more room to the upside, which is obviously a major negative for any
continuation of this current bull cycle, now three years old.
The SMH topped at 38.30 on 08/02/05 and has made
two lower highs since, with the last one on 10/03/05 along the the SPX. There is
some Fibonacci symmetry at 33.07 – 33, as the SMH closed at 33.38. The symmetry
is with the 09/07/04, 27.70 and 04/15/05 lows. This makes it a trading focus
today because some of the players might try and get the game going at this
level. Another primary focus is energy as the XLE hit the 200-day EMA zone with
the 44.94 low last Thursday (10/20/05) and rallied +11.1% in just three days to
49.94, which is the .50 retracement to the 54.65 09/22 high. The XLE closed at
47 yesterday after making a 46.77 intraday low. I expect the institutions will
try to hold these stocks up until year as they are now about 10% or more of the
S&P 500 but the Washington witch hunt is gathering steam as the politicians
grandstand for the public.
If the institutions get a chance to rally the
market into year-end there will be lots of program action because the major
mutual funds are now mostly quasi S&P 500 funds and that is why they will
attempt to influence price with their buy programs. This is being done Thursday
night for Friday and there is a threat of indictments on Friday. If the market
has an extended air pocket down it will provide short-term long opportunity.
Have a good trading day and have a good weekend.
Kevin Haggerty
