Subprime the Excuse, but not the Reason
Kevin Haggerty is a full-time
professional trader who was head of trading for Fidelity Capital Markets for
seven years. Would you like Kevin to alert you of opportunities in stocks, the
SPYs, QQQQs (and more) for the next day’s trading?
Click here for a free one-week trial to Kevin Haggerty’s Professional
Trading Service or call 888-484-8220 ext. 1.
The SPX was trading in a 5.6 point range until
the 1398.02 low was taken out by the sell programs on the 12:10 PM bar.
The media excuse was about the 12 PM news regarding the subprime problem and
increased foreclosures, which have in fact been going on for quite some time,
since the housing sector has gone south, but nobody in the government or
mainstream media wants to acknowledge it. Henry Paulson, Treasury
Secretary, said last week that the debt problem would be limited. The
jaw-boning from the administration is to be expected. However, it wasn’t
the generals that ran out to sell stocks at 12 PM as the SPX traded down from a
1400 high on the 12:10 PM bar to 1390.10 on the 12:30 PM bar. Taking out
1400 probably accelerated some option expiration activity, and of course spooked
the market, which generated the same kind of mini-meltdown selling which we saw
last week. The extent of the move was accelerated by the obvious
inefficiency of not having a legitimate auction market.
NYSE volume expanded to 1.96 billion shares, and
the 1.85 billion shares of down volume is the most we’ve seen since this
meltdown from the SPX 1461.57 high started. The volume ratio yesterday was
just 5, and breadth -2187. The SPX and $INDU were -2% to 1377.95 and
12076, while the QQQQ was -1.9% to 42.37 with the 200 dema at 42.17. The
SPX 200 dema level is 1367, with the $INDU at 11956, versus the 12076 close.
These levels, and today’s volatility bands, are the initial focus on any
continuation weakness today. Brokers and banks took the big hit yesterday,
with the $XBD -4.4% and BKX -3.3%. Brokers like MS, MER, LEH and BSC are
trading again below their long-term moving averages (200), after the first rally
from that zone, the last 5 days, while the home builders are in a free-fall.
The markets don’t like a weak financial sector. If the housing problems
continue to accelerate, the market will expect the Fed to cut rates, but that
will also put pressure on the $US dollar, which could take out the 80-78 zone,
and then that 1987 analogy which I have presented in previous commentaries will
be front and center again.
The most important thing for traders to realize
is that derivatives will accelerate the market in the direction it is going, so
moves can get very extended in a short period of time. The regulators look
the other way as the futures market is used to manipulate and influence the
equity market. The rules in place very clearly prohibit that activity, but
just like illegal immigration, it is not enforced. In future commentary, I
will present the rule as it is written, so you get the meaning.
Until the noise level changes, traders should be
in the "meltdown" mode, where you limit most of your trading to the major
indexes, ETFs and energy stocks. If you can anticipate the key price and
time zones, you will have a much better chance to find high-probability
opportunities. Take a free trial to the trading service to see the current
anticipated zones. It’s a win-win.
Today’s SPX downside Volatility Bands are:
-1.0
1369.06
-1.28 1366.58
-1.5 1364.62
-2.0 1360.18
Have a good trading day,
Kevin Haggerty
Check out Kevin’s
strategies and more in the
1st Hour Reversals Module,
Sequence Trading Module,
Trading With The Generals 2004 and the
1-2-3 Trading Module.
