Equity Market Dreads Slow Growth/Rising Inflation
Kevin Haggerty is a full-time
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The only significant major index action for daytraders
yesterday was the First Hour Trap Door reversals. The SPX traded to
1377.83 on the 9:40 AM bar, then reversed to 1387.20 on the 10:35 AM bar.Â
That was it for the major indexes on the day, as the SPX traded sideways until
the buy programs (3:15 PM) took the SPX up from 1384 to 1388 before closing at
1386.72. The up volume/down volume ratio was running from -1 to +1 between
1 PM – 3 PM, then jumped to +1.7 by 3:30 PM. On the day, NYSE volume was
1.59 billion shares with the volume ratio 63 and breadth +983. The SPY
volume was 50% above its 30-day average, and was the most since the July 18-19
start of this rally. Yesterday was the third day down from the SPY 141.16
high, with the intraday low at 138.11, but closing up +0.4%, right on the 20
dema. It was a narrow-range bar on increased volume coming off a 5-RSI of
25.11 after Monday’s knife down. Today and Thursday are the last 2 days of
the month, so based on the late buy program action yesterday, the SPX should
close the month higher than Tuesday’s 1386.69 close. The S&P futures are
+4.75 points as I do this at 7 AM EDT, but don’t chase any gap-up openings if
they hold; wait for pullbacks. The energy sector finished green yesterday
with the OIH +1.7% and XLE +1.6%. They were followed by the $HUI +1%, as
gold continues to advance versus the declining US dollar. The energy
stocks opened strong, and didn’t really pullback, so there was not much for
traders to capitalize on. However, there were many other Trap Door
reversals in big cap stocks like PG and FDX to take advantage of.
It was kind of funny listening to Fed Chairman Bernanke
yesterday telling us that inflation is the biggest threat. Sounds to me
like he is trying to talk the US dollar up, indicating they will raise rates if
need be. There is no doubt that industrial metal prices have skyrocketed
again, but this is not the case with the economy. Maybe he is worried
about the low-ball bogus inflation numbers we get from the Bureau of Labor
Statistics. Even the Dallas Federal Reserve Chairman recently questioned
the quality of the numbers and the market dislocations that can result. If
the current inflation numbers were calculated the same way they were before the
Clinton administration revised them, they would be considerably higher.Â
According to data on pre-Clinton era CPI, it would be just under 5%, and the
current official government data is only about 1.5% (www.shadowstats.com).Â
The Clinton revision was obviously done to keep the government interest payments
down, and for other political purposes, but it also screws everyone that gets
cost-of-living raises, etc, based on the CPI. That includes all the people
on Social Security. Bernanke knows inflation is much higher than reported,
and is now looking at an economy that is slowing down significantly. Third
quarter GDP was +1.6, the slowest since 2003, the slump in the housing market is
the worst since the early 80’s, and yesterday’s durable goods orders fell the
most in six years, not to mention the inverted yield curve. The slow
growth and rising inflation is the worst scenario for the equity market, and it
will get very crowded at the exits.
Have a good trading day,
Kevin Haggerty
Check out Kevin’s
strategies and more in the
1st Hour Reversals Module,
Sequence Trading Module,
Trading With The Generals 2004 and the
1-2-3 Trading Module.