Energy Reversal Negative for SPX
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In Wednesday’s commentary it was noted that the late Tuesday
buy program action was a prelude to a month-end markup and that the SPX should
have a month end close higher than Tuesday’s 1386.69. The SPX and $INDU
reacted immediately to the Chicago PMI number below 50 as the “gang” hit the
futures. The $INDU went from +10 points on the 10:00 AM bar to -40 on the 10:15
AM bar. The SPX intraday low was made on the 10:20 AM bar and the $INDU made a
lower low into the 11:30 AM period, which gave traders an RST long reversal
setup. That was also true for other ATL (above the line) stocks like AXP,
PG, and MNST. All three trades had volatility band symmetry. The
Slim Jim Traders probably caught NKE, which also broke out to new cycle highs on
the month-end mark. The SPX closed almost flat at 1400.65 as it gave back
the program markup points in the last half hour. The large buy programs
hit on the 2:25 PM bar with the SPX up less than a point at the time and the Dow
-21 points. On the 2:40 PM bar the SPX was +5.9 points and the Dow
reversed 44 points from -21 to +23. It had nothing to do with any
fundamentals or economic reason. The SPX made a 1406.30 high on the 3:30
PM bar and the program points were given back in the last half hour as the SPX
closed at 1400.65. The Generals did a nice job into month end from
Tuesday’s 1377.83 low. NYSE volume jumped to 1.95 billion shares yesterday
with the volume ratio of 62 and breadth +935, which was helped in part by the
TLT +0.7% because of the financial listing skew on the NYSE.Â
In the sectors, gold led with the $HUI +3.6% as the $US dollar
declined to another new low closing at 82.93 with key long term support at
80.59, which was the low close on 12/30/04. The TLT made a triple top
point and figure breakout, so its obvious the bond market had a very early read
on the slowing economy as the equity pundits and economists were in total
denial. You also had the Fed and government talking up the economy prior
to the mid term election, but of course to no avail. If you think the
economy has problems now wait until the empty suit Charles Rangel takes over the
house ways and means committee.Â
The month end game is over unless there is some new money put
to work the first couple days of December. Crude oil is trading higher and
breaking out of an 8-week range off the 58 low. Energy indices like the $XOI,
$OSX, OIH and XLE have all broken out of their current trading ranges. The
SPX advance started on 7/18/06 from 1219.49 while the crude oil (CL0701) decline
started on 7/14/06 from 80.90. If this crude reversal gathers more steam
the equity market will decline especially with the weak $US dollar. It is
too early for the Generals to play any year end markup game, so if there is to
be any downside “air pocket” it will be over the next 2 weeks. With the
$US dollar tanking the PPT (plunge protection team) might have to work overtime
to hold the US stock market up because the foreigners are not happy with the
falling US dollar and stocks at the same time. As it is, the current
decline in the dollar has offset the SPX gains during this rally for the
foreigners so they are not happy campers to start with. Â
Have a good trading day,
Kevin Haggerty
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