Generals pushing for year-end mark-up
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.
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The SPX traded in a 4.3 point range
between 1255.73 – 1251.40 until the FOMC release and then the SPX advanced +7.9
points to a 1261.90 high and and 1261.23 close, +0.5%, and +6.4 points on the
day. NYSE volume was 1.68 billion shares, volume ratio at 65 and breadth soft at
+598. The Generals seem to be doing a good job of rolling out of undesireable
positions into more of their winners for the year-end push. That is one
reason there is the significant divergence in breadth recently, but certainly
not the primary one late in the bull cycle.
After a 2004 year-end mark-up to save the year and a very weak
2005 until the current advance from the 1168 SPX 10/13 low, the hedge funds are
also pushing hard for a mark-up into year-end along with the Generals. They will
steam-roll any existing shorts if they can. Price continues to rise with weak
internals like breadth and new 52-lows exceeding highs for the past two weeks
ending 11/18, in addition to just a small advantage in advancing vs. declining
volume. The base for this continued advance has weakened considerably and is in
need of a pullback.
Leading sectors yesterday were the OIH, +2.2%, and SMHÂ
+1.9% Crude oil ($WTIC) gapped and closed above its 57.88 200-day EMA to 58.84.
However, the OIH broke out to a new bull-market high yesterday, closing at
126.70. Light crude has declined since the 08/30 close of 70.85, while the OIH,
after a retracement to 105.45 on 10/19/05, has advanced +20% to yesterday’s
126.70 close . Both “Generals’ Pullbacks” (05/16/05 and 10/19/05) have been
excellent trades (see
seminar manual / Sequence Trading module).
There will be more random price movement today and Friday as many trading desks
and NYSE floor operations are half-staffed. That usually means the rookies are
on the books with instructions not to get into any position trouble so prices
can get easily pushed in either direction by the infamous “they.” Upstairs
daytraders are just toys in this game and should keep their powder dry unless
there is a high-probability setup.
Implied volatility is down at the low end with the SPX AIV
(average implied volatility) at 9.3% yesterday. Because of the 28-day +8% SPX
advance (low to high) since 10/13/05, long delta synthetic straddles were put on
yesterday because it is a very good inflection point and an overbought marked up
market on weak internals. There is symmetry at 1253 – 1254, (.618 retracement,
1553), 1265 – 1273, then 1305 -1307 (measured Wave 5 price objective). All of
the specific anticipated time and price zones will be e-mailed
Inner Circle members today.
The next commentary will be Monday.
Have a Happy Thanksgiving and have a great weekend.
Kevin Haggerty