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.
Commentary for 10/17/11
This commentary includes excerpts from my recent Trading Service comments.
The SPX finished the week +6.0% to 1224.58, and is now +14% in 9 TD [includes 8/9] from the 1074.77 low on 10/4/11, which is an unsustainable vertical move, and the correction angle that follows to the downside is most often similar to the one up, but not necessarily price. The weekly average volume last week of 917mm shs is the lowest since the 849mm shs the week ending 7/22/11 when the SPX made the 1347 high on 7/20/11, which preceded the -18.2% decline to the 1101.54 8/9/11 low.
There have been 46 TD in the trading range starting from the 1101.54 low to the 1230.71 high, 1074.77 low, and now the 1224.58 close Fri. There have been 7 percentage swings within that 46 day range of +9.6, -7.2, +9.8, -7.7, +7.4, -11.9, and +14 from 1074.77 to the Fri 1224.58 close. That is a total travel range volatility of about 67%, which is obviously not a rational market. The SPX resistance is clearly defined on the H&S chart at the 1235 200DEMA, and then the neckline in the 1260 zone with the 200SMA. The 5 RSI is 78.15 and the odds obviously favor a correction, especially into the next couple of weeks.
The SPX is -2.6% YTD and Nov starts the strong seasonal period, which according to the trivia [J. Minton] is obviously significant as it is a pre-election year, and the last time it suffered a yearly pre-election loss was 1931 preceding the all-time SPX bear market low at 4.40 Since then, the DOW 30 plus dividends has averaged a return of almost 18% in the pre-election year.
I think the most bullish technical scenario would be for the SPX to pull back and form the balance of the Inverse H&S pattern, and then rally into the Nov-April seasonally positive period, but it is not based on anything fundamentally or economically positive that is obvious now, but the pre-election year track record certainly increases the odds. Also, an inverse H&S B/O right into the neckline of a previous H&S breakdown with not much range in between could end up with a grinding sideways market for a period of time.
The next correction following this rally won`t be another 1931, but if it is a reasonable decline into the end of Oct it would set the market up for a strong rally, at least into year end. The “buy them Nov 1st and sell them in May” crowd is probably very anxious to play, because they sure as hell avoided an ugly market by “selling in May and going away”.
The market is either up or down each day according to the media depending on the Euro debt news, which means they can print sensational headlines etc each day to sell papers and TV time, and this has been the case for almost 20 months now since the media picked up on the Euro Zone problems. It gives them cover to duck the reality that the US has been and is already in a second dip recession, but when it is confirmed by the Govt agency it is usually over [Don`t hold your breath]
A headline last week in one of the Democratic leaning media sources stated that “ No US Recession as economic forecasts improve”, and then there was another report that stated the percentage of decline in Household Income has doubled since Obama`s self proclaimed recovery started compared to the recession of 2007-2009 [Say What!] I bet on the reality not the forecasts, which have been so not correct by almost all of the academic economists that surround Obama.
The market is a Casino, and the “game” was mostly about the gap openings last week on 4 of 5 trading days. It gapped up on Mon, opened in-line Tues following the +13 point markup in the last 30 min on Mon, gapped up Wed, gapped down Thur and had a significant gap up on Fri. The trends after the gap opening periods were mostly sideways so the Euro zone has wagged the dog. It has been either “risk on” or “risk off” for the last two weeks as the SPX has advanced +14% low to high during this rally from the 1074.77 low last week. I don`t expect that scenario to change anytime soon.
Sell the resistance zone outlined on the SPX chart included in this commentary, and if there is a significant correction into the end of Oct the odds favor the pre-election year and seasonal rally.
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