Fear Creates Opportunities for Traders
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 7/28/11
The SPX was +2.2% last week to 1345.02, and is -3.0% so far in 3 straight down days this week, following the SPX -2.0% fear day yesterday. The Euro bailout news took a another negative twist, the US economic outlook pendulum has swung back to the slow growth/ recession second half scenario, and most of all the debt ceiling political grand standing by both parties, and the dire predictions, have become a heavier anchor on the equity market.
The market is obviously captive to the news, and has declined -4.5% from the 1356.48 [7/7/11] high in 7 days to 1295.92 [7/18], advanced +3.9% in 3 days to the 1347 high [7/21/11], and has now declined -3.2% in 3 days to yesterdays` 1303.49 low and 1304.89 close. The financials [XLF] remain under the 200DEMA, and yesterday the Industrials [XLI] closed below the 200DEMA, both of which make up the major sector weighting in the SPX, so that is obviously not a technical positive.
The SPX -2.0% decline yesterday was a 90% fear day with the Volume Ratio [NYSE] just 5, and Breadth Ratio 8 [NYSE]. Friday is the last trading day of the month, and next Tues [8/2] is the initial debt ceiling deadline. There is a lot of position hedging by many money managers as Washington plays chicken with the debt ceiling etc, but the market is S/T-O/S as the 4 day MA`s of the VR and BR are 28 and 27. The volatility has been positive for day traders during July, but difficult for swing traders, and I don`t see that changing anytime soon, especially in the energy sector. The Volatility Bands posted in the Trading Service have been the biggest factor in trading this knee jerk market which you can see with a one-week free trial to the service.
The rhetoric and political misinformation about how to solve the growing US sovereign debt crisis will reach a crescendo going into the 2012 election, but no matter how many, or what cuts they make, or if they are stupid enough to raise taxes, none of which matters in the end, because it`s all about the interest which is choking the country. The debt will keep growing until the Govt stops their perpetual borrowing, and only then will the US have a chance to avoid a sovereign debt default.
Notice that neither party tells you what the interest rate assumptions are when they tell us that its going to save x amount over so many years etc, and the CBO just takes the assumptions given to them by the two parties and does the calculation, which isn`t worth the paper its written on when interest rates rise, which they inevitably will from the current artificial lows.
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