Bull to bear cycle trading adjustment

Kevin Haggerty is a full-time professional trader who was
head of trading for Fidelity Capital Markets for seven years. Would you like
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There was lots of market
noise last week
on another Fed statement, as the SPX gained +1.9% on
Wednesday and gave most of it back (-1.6%) on Thursday and Friday. It closed at
1236.86 on Tuesday and then 1240.29 on Friday, +0.4% on the week. The 233-200
day EMA zone (1256-1252) was the resistance, with the SPX intraday high made
Thursday at 1262.50 vs. the 200-day EMA of 1260.34. It declined to 1238.72 on
Friday before closing at 1240.29. The minor support levels held up last week on
a closing basis for the SPX, $INDU and IWM. However that was not the case for
the QQQQ, COMPX and SMH, all of which made new closing lows on Friday (option
expiration). The COMPX was +1.8% on Wednesday and -2.9% the last two days, while
the QQQQ was +1.3%, then -2.6%. The semiconductors took the big hit, with the
SMH declining -6.0% after the +0.9% Wednesday gain. It finished the week -5.0%.
The big losers were last week were energy and gold, with the OIH -11.8%, and 
XAU -8.0%.  The OIH closed at 130, which is the 7-momth support zone. The
OIH is also the most short-term oversold, with the 5 RSI at 18.11, so daytraders
can look for some bounce this week.

The short-term internals are back to neutral after the Wednesday-Friday round
trip. The 4 MA VR was 48 and breadth +179. This week is month-end, so there
might be an upside bounce on some short covering, but the path of least
resistance is down and any significant rallies will be met by more selling,
which will then carry the SPX, $INDU and IWM to new lows. Trading is more
difficult in a market that is changing from a bull to bear cycle because there
are so many good news/bad news knee-jerk reactions, and the futures are easily
gamed. This obviously increases the volatility and traders must adjust position
size to allow for it.

The Generals continue to favor the defensive issues such as consumer staples,
utilities and healthcare, so there is no mystery about this market perception.

Have a good trading day,

Kevin Haggerty