Year-End Rally is a Chance to Short This Market
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 month-end markup last week was strong, as the SPX finished the week at
+3.0%, with 4 straight up days. The $INDU was +3.5% on the week, and the QQQQ
+2.9%. The weekly average up volume, versus average down volume was very
positive at 1.7 to 1. In addition to the month-end bias, the more compelling
reason for the anticipated bounce was that the SPX/$INDU were extended beyond
their 3-month -2.0 Standard Deviation zone, and the 4 ma of the volume ratio was
32, and breadth -1016 on 11/21. In fact, these 4 ma’s were short-term oversold
starting Monday, 11/19. With the volume ratios 32, 33, 32 while the 4 ma’s of
breadth were -769, -1101 and -1016. Members of the Trading Service knew this
combination of the 3-month extended Standard Deviation and short-term oversold
internals is a high-probability situation. The other factors helping the markup
were that the $US Dollar had advanced 5 straight days and finished +0.7% on
Friday to 76.15, while crude oil ($WTIC) has declined to 88.98 from 99.29 in
just 6 days. It was -2.5% on Friday.
The "midnight madness" hype for a rate cut next week by the Fed is in full
swing by CNBC, and they will also push the "year end rally", which does have a
positive bias, seeing that December has been an up-month 75% of the time for the
past 80 years. The .50 retracement to 1576.09 from last Monday’s 1406.10 low is
1491, and the SPX essentially hit that level on Friday, with the 1488.94
intraday high, so the rally is ahead of itself, with the next zone of interest
from 1510-1521, which includes the .618 retracement to 1576.09 and also a key
"Angle" from 1406.10. The short-term internals are overbought, with the 4 ma’s
of the volume ratio and breadth at 73 and +1157.
Daytraders were able to capitalize again on Friday with the First Hour Trap
Door reversal strategies, as the pre-market SPX futures were +20 points, and
this took the SPX to the 1488.94 high on the 9:40 AM bar. The Trap Door reversal
entry traded down to 1470.89 on the 3:10 PM bar before reversing the 1472.72
200-day ema and trading up to the 1481.14 close. Some traders caught both moves.
The 1470-1475 zone has other symmetry, which includes the 1473.34 .50
retracement to 1370.60 from 1576.09, and the 1472.37 1.272 Fib extension of the
BC leg (daily chart) from 1489.56-1552.76. It also reversed the previous day’s
1473.81 high, so there was every reason to cover the initial short and decide
whether to take the long entry from the 1470-1475 zone. The energy, basic
materials and utilities are the leading sectors year to day, as of 11/30, with
the XLE +25.5%, XLB +19.6% and XLU +16.3%. They are followed by the XLK +12.8%,
XLI +12.5%, XLP (consumer staples) +11.7%, XLV +8.4% and the SPX at +4.3%. The
financials, as you would expect, led the downside, with the XLF -15.4%, and the
XLY (consumer discretionary) -9.5%. In the Trading Service, our trading focus
has been on the energy, commodity and multinational stocks, and we did catch the
technology seasonal rally which often starts in the July/August time frame.
Daytraders will do well into year-end to focus on the top 40-50 leading
gainers in 2007 in major holdings of the Generals, especially those in the key
focus sectors mentioned above. There was no commentary last week, so for review,
read the 11/19 commentary from the archives titled "Traders Strategy Through
Year-End."
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 Happy Thanksgiving,
Kevin Haggerty