The Market, the Crowd, and You
From 1990 to 1997, Kevin Haggerty served as Senior Vice President for Equity Trading at Fidelity Capital Markets, Boston, a division of Fidelity Investments. He was responsible for all U.S. institutional Listed, OTC and Option trading in addition to all major Exchange Floor Executions. For a free trial to Kevin’s Daily Trading Report, please click here.
The Generals pushed the SPX to a new rally intraday high of 1039.45 on Friday, as they marked up their major holdings, but it quickly reversed and closed the day at 1028.93. The Shanghai Composite (SSEC) sold off -6.7% overnight coming into Monday, and the SPX declined -0.8% to close the month at 1020.62 (+3.4%).
It was still a good job by the Generals as they started from the 978.51 low on 8/17/09, when the SPX finished the day at -2.4% following the last China overnight meltdown of -5.8%. On a relative basis, the SPX obviously performed much better than the previous SSEC decline, but I am sure the underlying bids to hold the SPX into month end had something to do with it. The Generals usually don’t get aggressive with the mark up on the last day of the month, because that is about the only time the regulators pay attention.
The market is extended on a momentum/rate of advance basis, and there are many negative indicator divergences as the market enters the Sept/Oct “death zone”, so the probabilities for a reversal are obviously high during this period, but it is also true that almost everyone is anticipating the reversal, and the market has a nasty habit of not going along with the “crowd” very often.
However, it may make another quick turn up and squeeze the “crowd” first, but I think the odds are probably 80-20 that the SPX will correct to at least the 956-945 key price zone during the “death zone” period. The initial downside level is the 1014 .382RT (1576-667), and the SPX hit that Monday with the 1014.62 intraday low, before the late bounce to close at 1020.62. The 1014 level is followed by the 12-month EMA at 982, then the 40-week and 200-day EMAs at 956 and 953, which are both in the previous key price zone from 956-945.
I expect the SPX to reverse after any correction and then trade to at least the next key price level of 1121, which is the .50RT to 1576 from 667.
Have a good trading day!
Click here to find full details on Kevin’s courses including Trading with the Generals with over 20 hours of professional market strategies. Plus a free trial to Kevin’s daily trading service.