Government Market Intervention Creates Panic Selling
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 is +24% and up 10 of the last 13 days from the 741 low on 11/21, and has taken out the previous 896.25 swing point high to confirm the short term uptrend. This makes the 741 low a higher probability bear cycle low, seeing that this rally has reversed the 10/10/02 bear cycle low of 769. However, it is about buying the low zone not an exact number, which I have explained in previous commentary.
Investors always want to know when it is the best time to invest if the market goes bad, and the answer is when you least want to, which has been the last two months of panic. The “crowds” natural tendency is to throw money at the market near bull cycle tops as all of the pundits rationalize the fundamentals to justify the extended prices, and the same thing happens at extended level bear markets.
The greater the extreme, the more the pundits try to rationalize it, and in this case they predicting depression like consequences. However, this is contrary to how the markets work. Even Obama and his new administration are doing their best to predict dire consequences, for obvious political reasons. The SPX declined -53% from 1576 to 741 which makes it the worst bear market decline in the post world war two era. The last two panic months have accounted for 66% of the -53% decline.
After the SPX hit 840, and tested it a couple of times in a 7 week trading range, it looked like a sharp reversal would begin, but that didn’t happen because Paulson announced on 11/18 that he was changing his mind on the TARP funds from buying banks illiquid mortgage securities, which was not a popular decision to begin with, and instead decided to make direct investments in the banks. This flip flop spooked the market, and the SPX declined -12.8% in the next two days making the 741 low on 11/21. The more the government screws with the markets, the more it scares the participants, and that begets panic selling.
In the previous commentary, I said to expect the market to roll over for a few days this week because it was obviously ST extended. The SPX did decline -2.9% on Tuesday, but was +1.2% yesterday on the strength of the energy and materials sectors, while the QQQQ finished -0.3%. The NYSE volume dropped to 1.3 bill shs on the advance, but it was a very choppy day and it took a rally in the last 90 minutes for the SPX to finish green.
As I complete this at 8:33AM the SPX futures are -9.5 points and today has long term time symmetry (+/- 2 days), so the odds continue to favor the pullback to work off the ST-O/B condition.
Have a good trading day!
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