Continue to Sell Strength and Buy Weakness
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 SPX finished the 10/20/87 crash anniversary with a +4.8% gain to close at 985.40, but there can be no upside continuation price significance until the last swing point high of 1044.31 is taken out. NYSE volume of 1.2 bill shs yesterday was the lowest in 4 weeks, and almost 2.0% of the SPX gain was in the last 30 minutes of trading. The energy stocks were the leaders as the OIH was +12.2% and XLE +11.6%
Bernanke, Paulson, and Bush were all jawboning the merits of their new initiative, and there was some noticeable improvement in parts of the credit markets. However, it only appears to be in the credit markets where Governments are guaranteeing interbank contracts, deposits, etc., where they are the marginal buyer which means the Libor, commercial paper rates, short term bank obligation rates and bank credit default swap spreads are improving. That is not the case for spreads on corporate bonds and loans which are reaching all time highs not seen since the depression, especially in the case of investment grade corporate bonds. Also, the 30 year mortgage rates are moving higher, which is obviously not going to help the housing market.
It was a trading adjustment yesterday without the panic volatility that we have seen the last two weeks. The SPY gapped up on the opening, making a 97.03 high on the 10:00 AM bar, followed by a contra move to fill the gap at 94.35, and this set up the 123 Close entry above 94.91, and then the SPY went trend up to the 98.91 close. There was Fib and VB symmetry for both the Contra move (Trap Door) and the Gap Pullback (GPB), which you can view with a free trial to the “Trading Service”. You will also see the RST trade in the IYF (financials) which ran from the 52.90 entry to the 54.88 close.
The mutual fund outflows in the first two weeks of Oct were more than the entire month of Sept, and the hedge fund liquidations will continue, so the volatility will not go away anytime soon. This market is far from being on firm footing after the current bounce from the 865.93 higher low on 10/16/08, and buying weakness and selling strength remains the best approach. The equity allocation was increased on the panic selloff, and there is no reason to chase strength right here. There will be more opportunities to buy significant weakness on more credit market, and earnings sell offs.
Have a good trading day
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