Generals, hedge funds and the casino
Kevin Haggerty is
the former head of trading for Fidelity Capital Markets. His column is
intended for more advanced traders. Kevin has trained thousands of traders
over the past decade. If you would like to be trained by him,
ext. 1
The “Players” took the day off as the major indices went red, with the SPX
-0.9% to 1257.46, QQQQs -0.8% to 41.54 and the Dow -0.4% to 10,891. The media’s
mantra all last week was “Dow 11,000” for the lack of anything else intelligent
to say and the Dow was the better performer yesterday. The SPX had logged six
plus days in succession since November 16th on relatively weak breadth versus
the absolute price gain. The year-end rally is now six weeks old and +9.9% from
the week of 10/09/05 and actual 116.88 SPY low on 10/13/05. This surprises no
one as it is a repeat so far of the 2003 and 2004 year-end markups by the
Generals and the hedge funds. In 2004, there was a 10-week year-end move from
10/25/04 and +11.60%. In 2003, it was six weeks and +8.80% from week of
11/17/03. The SPX made a false breakout of the rising wedge and is now pushing
the upper line which now about 1300 – 1310 and is also a measured Wave 5 price
objective zone from the 769 October 2002 low. There has been a negative
divergence in MACD during the rise (see chart).
Daytraders caught a 4-bar short reversal (120-minute chart) below the low of
the high (1270.74) with entry below 1265.27 as it traded down to a 1257.46
close. Not a bad way to start the week. There is no retracement level to 1168.20
until 1246.54 (.236) which is back to initial magnet rally high of 1245.86. One
day down is not a pullback after the +9.90% advance so keep your power dry on
the buy side until there is a pullback of consequence.
The OIH led the primary sectors on the red side yesterday at -3.8% to 122.33.
This follows at +22.40% advance off the 10/19/05 low of 105.45 to new rally
highs at 128.90 on 11/23/05. The $XBD was -2.9% but the brokers had rallied +21%
since the 10/13/05 164.73 low. Both of these sectors were leaders and in
desperate need of retracement after the unsustainable angle of advance,
certainly assisted by the hedge funds and the Generals. NYSE volume was not
heavy yesterday at 1.49 billion shares but the volume ratio was 27 with 1.08
billion shares on the negative side. Breadth was -1042. The early futures are
green with the Dow +20 and the S&P +2.80 at 7:30 AM EST so be ready to play the
contra move after any advance into the 10:00 AM EST period. This, of course,
depends on reversal price action.
Have a good trading day,
Kevin Haggerty