Haggerty: Red Alerts for 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 SPX has remained in the narrow trading range since 11/9, after the rally off the 11/2 low. This is a short week as the NYSE closes at 1:00 PM on Thursday (Christmas Eve), and of course on Christmas Day, while there are just 3 and 1/2 trading days the following week because the NYSE closes at 1:00 PM on 12/31 (New Years Eve).
The primary theme in 2009 has been the “carry trade” with the declining $US Dollar giving strength to the risk assets such as commodities and equities. The Fed has kept interest rates at all time lows, because in the world without spin by the administration and its legion of flunky media minions, the derivative meltdown that triggered the “panic of 2008” is far from over. My bet is that there is more to come because the socialist administration policies are doomed to accelerate the problems, and this will prolong the deleveraging process that the media likes to conveniently skip over.
The USD has rallied +5.3% to a 78.14 high from the 74.23 low, with the declining 200DEMA at 78.37, and there is also some Gann Angle symmetry in that zone, so this is the first resistance test for the anticipated short covering rally. It has broken the down trendline from the 89.62 high, but if it is going to be a significant trend change it will make a higher low, and then a higher high.
Bloomberg had an interesting article on Bill Gross of Pimco last week, the world’s biggest bond fund, which said it cut its government holdings and boosted cash the most since the Lehman Brothers debacle in 2008. It went to +7.0% in cash from -7.0%, which they were able to do because of derivatives. They also cut holdings of mortgage securities to 12%, which is the lowest since the figures started in 2000. Bill Gross told the empty suits on CNBC that Treasuries are significantly overvalued compared to potential inflation. If his expected rise in interest rates plays out sooner than later the USD will rise and that will put pressure on the risk assets.
The SPX is +67.8% low to high, but there are significant negative divergences in volume and breadth, and the $BKX which led the rally after the 667 low is now probably the worst sector chart as it continues to trade below its 200DEMA, which is probably because their little no-risk borrowing game gift from the Fed is almost over.
The OIH declined to its 200DEMA and the 110.46 low, which set up an excellent swing trade for the trading service that advanced +8.8% to 120.19 high in just 6 days. It closed at 119.25 yesterday, and is at the down trendline from the 132.04 bull cycle high. If rates start to rise, the USD advance continues, and the OIH takes out the 110.46 low, and the BKX also takes out the previous 41.42 swing point low, the equity market will come under significant pressure.
Have a good trading day!
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