Haggerty: What Can Go Wrong?
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 advanced +2.2%, +1.7%, and +1.4% on the three previous Mondays, and went out yesterday at 1106.24. The “carry trade” was responsible for all those gains as the USD declined all 3 times, which you can also see with the inverted dollar ETF (UDN) as it went +0.9, +0.5, and +0.7 on those days.
The Fed continues to say that it will keep interest rates low for an extended period of time, and despite some jaw boning and spin, the Fed is behaving as though there is still a major systemic liquidity problem, so there obviously is. The economic reports have little if any credibility and it is all about what the Fed actually does that matters. The “herd” borrowing cheap dollars to buy dollar-denominated assets (carry trade) is over crowded to say the least, and the market will soon take its pound of flesh from the “herd”.
The two most significant factors that can reverse the current rally in equities and commodities are a short squeeze in the $U.S. Dollar and a hike in interest rates by the Fed. The institutional sentiment (Barons) is very one sided, with 60% bullish on equities, and only 4% bullish on cash and Treasuries, in addition to the world bearish on the U.S. Dollar. This is a significant imbalance, so you can bet that a sharp dollar short squeeze will send the equity and commodity markets sharply lower. The market rarely accommodates the “herd” for any extended length of time.
From a technical standpoint the SPX, INDU, and QQQ continue to make higher highs and higher lows, so the bull cycle primary trend since the 3/6 667 SPX low is obviously unchanged. There are some negative momentum and money flow divergences, but the market is in the strong seasonal period so don’t expect any significant pullback more than what we have had after the previous 1080.15 (9/23) and 1101.36 (10/21) highs.
However, the SPX is +67% low to high for this bull cycle within the secular bear market, and 33% of the long index scale down position taken in Feb/March has been exited as the SPX reached the .50RT zone to the 1576 10/11/07 last bull cycle top (+105%), within this secular bear market which started in 2000. Buy and Holders will inevitably get decimated again before this secular bear market runs its course to about 2017. If the current “Gang” in Washington gets its way the next one will be worse than the “panic of 2008”.
Happy Thanksgiving!
Click here to find full details on Kevin’s courses including Trading with the Generals with over 20 hours of professional market strategies. Plus a free trial to Kevin’s daily trading service.