Fed Answers Foreign Meltdown with Rate Cut
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Last week was a lot of the "worst since this and that" etc, as the SPX
finished the week at -4.5% to 1325.19, after making a 1312.51 intraday low on
Friday. The SPX was -4.6% for the week ending 1/4. There was US recession and
global economy slowdown panic talk all week, as well as the Citigroup and
Merrill Lynch writedowns and downgrading fear in the bond insurers. The market
has lost the leadership of the energy and commodity-related stocks, and of
course there was another leg down in the financials. The OIH was -10.3% last
week, with the XLE -9.1%, $HUI -8.2%, $BKX -7.8%, $XBD -6.9% and XLB -6.8%. This
is no surprise to any of you who have been reading this "rag sheet" about the
bear market unfolding since the 10/11/07 1576 top. The SPX is now extended well
beyond the 1-year -3.0 Standard Deviation zone, with the percentage of stocks in
the SPX above their 50-day MA at only 9%, and just 19% of the stocks above their
200-day moving average. This is versus 13% in March 2003 789 retracement to the
769 10/10/02 bear market low, 9% in 10/02 and 3% in 7/02. Extremely oversold is
redundant. There was only a 1-day bounce from the 1378.70 (1/9) low to 1429.09,
and then a meltdown last Thursday and Friday after taking out that 1370.68
8/16/07 low.
In the 1/16 commentary, I said that rallies in this bear market will be
sharp, but the odds favor a decline to at least the .382 retracement zone at
1268 (1576-769), which is -19.5% from the 1576 high. I also said there must be
some overt measures taken to reverse or slow the obvious problems we are facing
now that all the sudden reached media and political crisis levels last week, as
the Congress and Administration came up with a "political stimulant" package to
give away free money to all of us, soon to become socialized masses which will
in effect do next to nothing, other than let both parties pander for votes in
the 2008 Presidential election.
We got an upclose view on Monday (1/21) of how the foreign markets reacted to
the US panic last week. There was a foreign market meltdown yesterday, as the
MSCI World Index declined the most since 2002, with the Dow Jones STOX 600 Index
-5.7%. The US futures posted the biggest drop since 2001, as the SPX emini
Globex futures finished at -60 points if my quote vendor is correct. The SPX
Equal Weighted Index (RSP) is -20.6% to the 41.85 low on Friday, from the
7/13/07 52.74 high, while the SPX is -16.7% to the 1312.51 low from the 10/11/07
1576 high. The RSP did not confirm the 10/11/07 1576 high, as the leadership had
narrowed considerably. The $BKX is -37% from its 2/20/07 top, and the $XBD
-37.1% from the 6/1/07 high. Retail peaked on 6/4/07, and the XRT is -36.9%
while the semis topped on 7/17/07 and the SMH is -34.2% to its 1/16/07 27.21
low. The IWM and $TRAN are -22.6% and -26.2% from their highs, with the XLY
(consumer discretionary) -27.6%.
The SPX futures are -8 points as I complete this at 8:00 AM, and if they
hold, there will obviously be a significant discount opening from the previous
SPX 1325.19 close, which will set up the initial reversal opportunity for
daytraders.
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 and keep your helmet on.
Kevin Haggerty