Key Sector for Bear Market Reversal
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 hit a 1378.70 intraday low on Wednesday, in the anticipated 1387-1374
key price zone, with the extended 1-year -3.0 Standard Deviation level at 1375,
and we got a “magic” vertical rally starting on the 2:15 PM bar from 1378.70 to
a 1409.13 close. My guess is that the PPT was protecting that 8/16 1371 low to
prevent a meltdown. It was very similar to 8/16/07, when the SPX hit that 1371
intraday low, which was followed by another one of those “magic” rallies in the
last hour, where the SPX closed at 1411.27. FYI, “magic” is synonymous to PPT
(Plunge Protection Team). I thought it interesting that Treasury Secretary
Paulson had lunch that day with Bernanke, and the very next day there was a
surprise rate cut by the Fed, and the SPX took off to the 1576 10/11/07 cycle
high (John Crudell, NY Post).
NYSE volume was big again yesterday at 2.06 billion shares, with the volume
ratio 72 and breadth +1030. The financials had a second strong day on a
significant increase in volume, which indicates that money managers were picking
another bottom, as they did on 11/26/07 and 8/16/07 before that. There was also
significant short covering, with the BAC and CFC deal news, and also Bernanke,
lagging the real world once again, saying more rate cuts are needed. The XLF had
its biggest volume day ever at 224 million shares, and has made a +8.1% move low
to high in the last 2 days, from 25.91 to 28.02, before backing off to a 27.41
close yesterday. The $BKX was -26% below its 200-DSMA on Wednesday, and also at
the .618 retracement level to the 1998 low, so it is at a key price zone. The
XLF, which started trading on 12/22/98, has also hit the .618 retracement zone
to its 17.76 10/10/02 bear market low.
The SPX is -12.5% to that 1378.70 low on Wednesday, but there have been
significant declines in key sectors. For example, the IYR, which topped out on
2/8/07, has hit -44.4%, the $BKX (2/20/07) -35.2%, XLF (5/31/07) -29%, $XBD
(6/1/07) -33.7%, XRT (7/4/07) -35.5%, XLY (7/6/07) -27.1% and SMH (7/17/07)
-31.4%. This bear market is 90 calendar days old as of Wednesday. The previous
bear market was 31 months and -50.5% for the SPX, but back through 1987, we had
1998 (-22.5%), 1994 (-9.7%), 1990 (-20.2%), all of which were 3 month declines.
The 1987 crash was -36.1% in 2 months. The financials are the key to the extent
of this bear cycle decline, and whether or not it will be a soft landing like
1994 with a minimal percentage decline. SPX 1386 is the .236 retracement to 769,
with the .382 retracement at 1266, which is -19.5% from 1576, and just another
8% from that 1378.70 low. The market has to go down before it goes up, which
means that I think that 8/16/07 1371 low has to get taken out before thinking of
any new bull cycle move. If the socialist wins the White House, all bets are
off.
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