A Market on the Ropes
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?
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The SPX finished the week at -1.5% to 1453.55 and the anticipated reversal
(9/5 commentary) from the key price and zone made a 1449.07 intraday low, versus
the 1496.40 high last Tuesday (9/4). The retail consumer sectors and the
financials led the downside last week, while gold and energy both advanced. The
$US Dollar made new lows to 79.84 and closed at 79.96, as the rate cut and
slowdown chatter dominated the week. With the new $US Dollar lows, gold shot up,
with the $HUI +9.2% for the week, and the future ($GOLD) broke out above $700,
closing Friday at 709.10. The Fed has continued to pump up the money supply, and
started well before subprime became front-page news. If the $US Dollar selling
accelerates, the equity markets will continue to head south, and interest rates
will rise, along with gold. Two weeks ago, the empty suits on CNBC told you
about how our economy was strong and resilient, inflation was under control, and
the consumer would continue to spend and support the economy. They also said,
“things are different” because of the global economy. Right, things were also
different in 2000 because of the internet bubble that preceded a -50.5% SPX
decline from 1553 to 769, which was the steepest decline since the 1929-1932
bear market. The CNBC inane chatter has now changed to recession fears, except
for Larry Kudlow, who is a perennial economic bull, and a soft landing
proponent. Here’s to you Larry, we hope you are right.
The reality is that the business cycle has not gone away because of the
“global economy,” and we will continue to have bull and bear markets. The fact
is that this bull cycle had run out of time, as the 2670 days from the 3/24/00
1553 high to the 7/16/07 1556 current cycle high is the longest time between
bull market tops (55 years) since the 2463 days between 1980-1987 tops. It would
be nice if the -11.9% SPX decline to 9/16 is the 4-year cycle low, as it has
exceeded the 1994 -9.73% soft landing decline, but the higher probability is
that there will be lower lows.
It is significant to note that the XHB (homebuilders index) topped out on
2/2/07 and has since declined 43%. The $BKX also made its high on 2/2/07 and
declined -17.2% to its 8/16 low, while the $XBD topped on 6/1/07 and was -20.6%
to its 8/16 low. The IYR (Dow Jones US Real Estate Index) was also a 2/07
topper, hitting a high on 2/8/07 and has declined -30% to the 8/16 low. When
CNBC was counting the consumer, they forgot to look at the XRT (S&P Retail ETF)
which hit its current cycle high on 6/4/07 and has declined -20% to the 8/16
36.39 low, and as of the 37.87 close on Friday, looks ready to make new lows
again, leading the SPX and $INDU. These sectors obviously don’t have bull market
charts. Not many of them do. How confident can the consumer be, with oil prices
rising along with food, health care, insurance, property and school taxes, etc,
in addition to the significant decline in their home values, which will get
worse before it gets better. 99% of the consumers don’t have a clue as to how
negatively a declining $US Dollar will effect them, but you can bet they will
find out in a hurry if that happens.
Unless something dramatically changes, the higher probability is that the
major indexes will trade lower in this down cycle, and the unknown is how much
the PPT (Plunge Protection Team) can prevent a significant decline going into
the 2008 Presidential election. The third week in September, followed by
mid-October are the next primary time periods.
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.
Have a good trading day,
Kevin Haggerty