Extended Reversal Zone Still in Play
Kevin Haggerty is a
full-time professional trader who was head of trading for Fidelity Capital
Markets for seven years. Would you like Kevin to alert you of opportunities in
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The SPX closed at 1401.02 Friday (-1.4%), which is a new low cycle close. It
is -4.6% year to date, and remains extended on a 1-year Standard Deviation
basis. On Friday, the $INDU was -1.9%, led by AXP, while the QQQQ was -2.0% as
the semis continue their decline, as the SMH is -14.4% for the last 2 trading
weeks to lead the 2008 downside, along with the $TRAN -9.8%, RTH -8.2% and $XBD
-7.2%. The brokers and banks are up 3 straight days on a bounce off their
longer-term retracement levels. The volume on the XLF on Thursday and Friday was
the most ever for the
ETF, and it made a +8.5% low to high (25.91-28.11) bounce
in 3 days before closing at 27.50 on Friday. It is a much better risk/reward to
play the financials through the XLF in this current market rather than worrying
about company-specific news about writedowns, etc, and that’s what many
institutions and hedge funds are doing. NYSE volume was 1.79 billion shares
Friday, with the volume ratio 26 and breadth -865. Despite the SPX -1.4% day,
both the $XBD and $BKX finished +0.3%, while the TLT was +0.8%, and the $HUI
+1.4%. THe $HUI is +14.5% in 2 weeks, and is the leading sector in 2008, along
with the drugs, utilities, biotechs and some standard defensive issues, like JNJ,
KO and MO, to name a few.
I said in the previous commentary that the financials are the key to the next
bear market reversal. The SPX has declined -12.5% from 1576.09 to 1378.70, and
it is 1919 calendar days to Friday’s new SPX low close at 1401.02 to 10/10/02.
This surpasses the 1982-1987 4-year cycle low period of 898 calendar days, which
had been the longest cycle since the 1949-1953 cycle (thechartstore.com).
1994 was a soft landing in the economy, and the SPX 4-year cycle decline in 1994
was only -9.7%. From a time standpoint, this market is certainly stretching the
4-year cycle low period, unless you think that the SPX -12.5% decline to 1378.70
last Wednesday is the low. I don’t think that is the case, and I anticipate
1378.70 to get taken out. The bear market decline so far, as defined by the SPX,
is 3 months and -12.5%, while 1998 (-22.5%), 1994 (-9.7%), and 1990 (-20.2%)
were also 3-month declines. The 1987 crash was 2 months and -36.1%. The one we
don’t want to duplicate is the 2000-2002 bear market, which lasted 31 months,
and the SPX was -50.5% and was a 48-month 4-year cycle low from the 1998 low,
and right now we are looking for the 4-year low from the 2002 bear market low.
In the January 9 commentary (Short Term Buy Zone in Bear Market), I outline
the extended Standard Deviation levels and time symmetry, which made a rally,
the strongest probability. The SPX bounced off its down channel line at the
610-ema (Fib) and 1378.20 low. The first moved failed at 1429.08 on 1/10, and
the hit 1394.83 on Friday before closing at 1401.02. The SPX futures are +10 as
I complete this at 8:15 AM, so we might get the second attempt at the bounce
today.
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.
Have a good trading day,
Kevin Haggerty
