Fiscal Year-End Incentive
The
major indices were running at about a -1.5% to -1.8% rate
before the 2:00 p.m. ET reversal show
started, as the indices rallied with the SPX
(
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the Dow
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time the indices reversed to the upside, the bond proxies, such as the TLTs
which is the 20-year-plus proxy and IEFs which is the three- to 10-year proxy,
immediately reversed, so you knew there was a bigger game going on. The Generals
didn’t all at once say buy them in concert at 2:00 p.m. because we love the
market.
NYSE volume was 1.5
billion, a volume ratio of 65, and breadth +760. In the sectors, the
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gained 7.8%, reversing the previous day’s -6.1%. The SMHs are now +16.4% in five
days.
The good news is that the
swap is into stocks and out of bonds which puts more pressure on remaining
shorts and those that did nothing at our lowest common denominator entry point,
which was the 1,2,3 lower bottom/Shake ‘n’ Bake reversal of the 775.68 low,
which of course had other confluence to make it an entry with a positive
mathematical expectation. The next good entry will come on a pullback from the
current +18% rally in 10 days for the SPX and almost double that for the SMHs.
There is no edge buying into any extended short-term move, and in the
previous commentary, I outlined those levels. The last three reversals for
the SPX were all +20% or more, so there should be no surprise if this one
reaches that zone also before a pullback.
If you missed the initial
entry opportunity, which is most of you, you are now playing to catch the third
wave, if in fact 769 proves to be the low, which I think it is. The indices are
still in a possible Wave 1 which won’t be confirmed until there is at least a
pullback of approximately .38 to the 769 low and then a reversal of this current
leg high wherever it ends. That would force major money into the market, and
especially from hedge funds that must face their investors at year’s end who are
worn out from three years of losses and many ready to bail out at exactly the
time they shouldn’t.
October has a positive
return so far, with the SPX +9.9% month-to-date from the Sept. 30 815.28 close.
There is major incentive for the Generals to put a positive October on the
books, especially some of those very large funds that have October as a fiscal
year end. Hint. Portfolio managers get paid on a percentage of fees and their
yearly performance relative to their specific index bogey, like the S&P 500. It
behooves these portfolio managers to push the envelope into month-end.
The SPX has a
continuation setup here with a move above the high of 900.69. Monday was a
wide-range-bar close in the top of the range. Tuesday was an inside day/pause
day, and where it closed is not a factor. The chart junkies will be all over a
trade-through entry of the 900.69 high and will try to force the issue, but it
is only the Generals’ money that can make it hold into the higher retracement
zone through 925.
Have a good trading day.
Five-minute chart of
Wednesday’s SPX with 8-, 20-,
60- and 260-period
EMAs
Five-minute chart of
Wednesday’s NYSE TICKS