Identify the Probabilities

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.

Commentary for 1/3/12

The SPX finished -0.6% for the week, and essentially flat on the year at 1257.64 versus the 2010 1257.54 close. The NYSE volume dropped off the cliff for the last week in 2011, with a low of 495mm shs, and high of 587mm shs, but the UVOL/DVOL ratio was 2.3-1, and 2.1-1 the previous week as the SPX gained +4.6% in the last 9 trading days of 2011 from the 1202.37 low [12/19/11] to the 1257.60 year end close. The QQQ was +1.8% on the year, and who cares about the INDU [+5.5% YTD] other than the empty suits on CNBC.

In the Sector SPDRs the Defensive sectors were the 2011 leaders with Utiltities +14.81%, Consumer Staples +10.85%, and Health Care +10.13%. The Consumer Discretionary sector also finished positive at +4.3%, and actually, much of that sector is also defensive, while the Energy sector was almost a push at +1.29% and Tech +1.03% On the downside, the Financials were the dogs at -18.5%, with Materials -12.78%, and Industrials -3.21%.

The Euro Zone news cycle was quiet going into year end, but that will pick up again as we start the New Year. The SPX is in an inverse H&S pattern at the 200DSMA zone, and just below the topping H&S neckline which runs through the 1275 zone. It is a no mans land when you have conflicting H&S patterns with no price space between the necklines.

The SPX is neutral on a momentum basis, but it is just above the contracting volatility pattern at the resistance zone, so it is obviously vulnerable in price [both ways] to any renewed Euro rumors, or whatever the hell else the politicians in the US can screw up to the best of their lack of ability.

The last QTR of 2011 was heart burn for the Generals and hedge funds as the SPX made moves of +20.2% from the 10/4/11 1074.77 low to the 10/27/11 1292.66 high, followed by a -10/4% decline to the 1158.66 low on 11/25/11, and then the +9.6% year end advance to the 12/27/11 1269.37 high before it closed the year at 1257.60 The USD short term trend remains up, and it is what I call an Above-Line-Index [20MA>50MA>200MA] which you can see on the USD chart, and a B/O of the current range will put pressure on both the equity and commodity markets.

It is not a high probability buy zone for the SPX, and it is just a speculation long trade if you assume a B/O of the resistance zone, which might at best test the 1325 zone [+5.3% from 1258] That would be your bet but not mine, as I would rather wait for the next high probability buy zone with symmetry and sell this current zone through the 1275 H&S neckline, which would be a lower common denominator entry risk trade.

USD30 chart

SPX30D chart

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