Fed Ponzi Scheme Inflates Market but Kills Volatility

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 2/19/13

The SPX closed all 5 days last week within 4.4 points [1521.38-1517], and the weekly range was only 11.1 points [1524.69-1513.61], or 0.7%. The February high-low range so far is only 2.0% The 1524.69 intraday last week was a new cycle high, with the actual high cycle close at 1521.38.

The SPX has advanced 13 weeks and +13.4% off the 11/16/12 1343.35 low, and was positive for 11 of them. It has advanced every week in 2013, with the weekly 5 RSI at 83.43, so it is obviously extremely O/B on an intermediate basis in a strong price trend [artificial that it may be]. The weekly 5 RSI peaked at 86.84 at the 9/14/12 1475 high, and 90.90 at the 4/2/12 1448 high, which are the previous two significant SPX highs. Those highs were followed by declines of -10.9% and -8.9% respectively.

In addition to the 13 week Fib advance, last week was also 60 TD`s from the 11/16/13 1343.35 low, so in addition to the Fib 13 week advance there was also Pi symmetry as last Wednesday was 60.2 TD`s [7 x 8.6] from the 11/16/12 1343.35 low, so there is both Fib and Pi time symmetry in his O/B market.

The daily chart SPX 5 RSI peaked at 93.42 on 1/25/13 when the index closed at 1502.96, but as the SPX has traded higher there is a negative divergence as the 5 RSI went out Friday at 65.03. However, the long term monthly 5 RSI, like the weekly, is also O/B with the 5 RSI 82.10. The SPX is extremely vulnerable when it takes out the 1576 magnet high for a significant correction, if not before, which would surprise the majority of so called “pundits”.

The Fed`s Ponzi scheme to inflate the markets has killed the volatility and greatly reduced trading profits for anyone that has skin in the game, especially the brokerage firms. From a day trading standpoint it has certainly reduced any “no brainer” momentum trading to a minimum, although the frequency of our basic trading strategies hasn`t changed, but you have to adjust position size to allow for the low volatility.

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