Haggerty: A Peak at 2010

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.

The Generals have made sure that the SPX is at the highs YTD as 2009 comes to a close today, and the decade also comes to the end. The SPX went out yesterday at 1126.42 or + 24.7% YTD, but the decade did not fare well as the SPX is -23.3% from the 1496.25 12/31/99 close. The secular bear market started in 2000, and they generally run about 17 years, so buy and hold investors will continue to struggle while the only real money will be made by active market timing investors, in addition to opportunistic hedge funds and professional traders.

The SPX is +70% from the 667 3/6/09 low to the 1130.38 high this week, so the market risk factor is obviously significant when looked at on a relative basis to past bull markets, especially the 70’s when the 1970 bull cycle was +70%, 1974 +73%, and 1978 +62%. The 1987 bull cycle was +71%, and the 1998 cycle was +68%.

The first bull cycle of this secular bear market was +105% for the SPX, but the economic catalyst was a significant reduction in taxes across the board, including the reduction in the Capital Gains tax to 15%, in addition to promoting a business friendly environment from a regulatory and monetary standpoint. During this period the Government collected more tax revenue then ever before, and the SPX ran from 769 to 1576. However, the current Socialist agenda in Washington, with the unprecedented debt, spending, significant tax increases across the board, unfriendly business climate, over regulation, Government takeover of significant industries, attempt to set compensation levels across any industry it can, socialized medicine, and the proposed Cap and Tax bill, is not the same environment that enabled the SPX to run +105% from 2002-2007.

However, this sharp +70% rally is a “V” reversal at the same angle as the “Panic of 2008” decline into the 667 low, and there has yet to be a 10% pullback, but that won’t be the case in 2010. The market has obviously benefited from the zero interest rate climate as the Fed has flooded the system with liquidity, and that resulted in the “carry trade” which has been the primary catalyst driving this equity market higher, in addition to gold, energy, and the other commodity sectors.

The reversal of this trade in 2010 could obviously put pressure on the market, and the USD has already rallied +5.8% from the 74.23 to 78.45, with the 200DEMA at 78.34, so it is a key level to watch. As well as any significant rise in short term rates because the Fed can control the short rates, but not the long which are now rising in an obvious uptrend as the 20DEMA is > than the 50DEMA which is > than the 200DEMA, and they are all rising. So that picture tells you more than any pinhead or empty suit on CNBC can.

The odds right now are about 65-35 that the SPX will trade to the 1200-1250 price zone with the .618RT to 1576 from 667 at 1229 (+84%). There is other significant Fibonacci and Gann price and time symmetry about that which will be in the Trading Service commentary next week, and you can read it by taking a one week free trial.

Have a good trading day!

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