Congress is a Great Short Indicator
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 had a +21% 5-day rally into month end (11/28) from the 741 low to an 896.25 high and close. This was followed by a -8.9% mini meltdown on Monday, and then +4.0% and +2.6% the last two days to make it a plus 7 out 8 day advance, in light of increasingly negative economic news, the deflation/depression hysteria in the media, and from many “late to the party” economists who are the least dependable market source of all other than the “empty suits” on CNBC.
The market was obviously short term O/B going into yesterday, so the -2.9% SPX decline was no surprise, and more pullback is expected. The Congressional circus with Detroit resumed yesterday, and it had set up the short side the last time they met, and it was the same yesterday after Dodd opened with a political attack instead of the reality needed to resolve the already agreed upon bailout by the Democrats, so why waste the time and money with the “dog and pony” show.
The SPY actually traded higher into the 88.05 intraday high on the 10:55 PM bar after the 10:00 AM meeting started. It took out the previous day’s high, and that set up the powerful RST strategy with short entry below 87.78, which is a low common denominator entry relative to the 88.05 signal bar high. It traded down to 83.74 before closing at 85.07. Some traders used the futures instead of the SPY as it doesn’t matter which you choose, because its the Cash index (SPX) that is the key. The combination of the “clowns” in Washington DC, and the ST-O/B market condition made it a good day trading for the Trading Service members.
NYSE volume was actually the lowest this week at 1.47 bill shs, with the Volume Ratio 22, and Breadth -1521. Crude oil declined -6.7% to settle on the NYMEX at $ 43.67 and as you would expect the OIH -9.4 and XLE -6.9 led the downside. The OIH made a new bear market low at 63.92 and it looks like crude will push the $40 level.
The most positive market action of the last few days has been the reduction in the 30 year mortgage rate to 5.58, and it will go lower, so it will certainly give a boost to the housing market, but also the equity markets, especially with so much cash on the sidelines.
The jobs number was just reported and CNBC is hysterical treating it like “midnight madness” at 6.7%, which still remains one of the lowest in the world and over 93% of the country is working. There is no depression, and there will be no depression, despite the Derivative Meltdown, unless (1) the Democrats take the protectionist route to favor the unions, which destroy every industry they are involved in, and (2) contract the money supply, which won’t happen.
The lagging unemployment rate will keep rising well after this new bull cycle is already well on its way.
Have a good trading day!
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