It’s All About the Dollar, Not the Fundamentals
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 2/16/12
The previous commentary was 8 trading days ago on 2/6/12 and the SPX closed at 1344.33, followed by a 7 day narrow range, then closed yesterday at 1343.23. The 8 day intraday trading range was 1355.87-1337.52 or 1.37%.
The SPX 39 day persistent rally from the 12/19/11 1202.37 low remains intact, but it is obviously extended by most any sentiment or Standard Deviation indicator, and has advanced 9 of the last 12 weeks while the volume on the advance has been extremely low on a relative basis by any standard.
The election economic spin is intense, but the reality of the numbers is so unrealistic that you have to laugh, especially when the CNBC empty suits and self serving pundits continue to hype it with a straight face. Hey, it`s an election year and either party is in charge does the same thing. However, the consequences of what Obama is proposing going forward is a death knell for growth in his second term, especially the first two years unless he loses both the House and Senate.
There was a secular bear market from 1965-1982, a secular bull market from 1982-2000, and we are in a secular bear market now from 2000 to 2016/2017. The bull and bear cycles are sharp both ways in a secular bear market, and after a +105% gain from 667 to 1371, followed by a -21.6% decline to 1075 in 22 weeks, the odds are that when the SPX takes out 1371 it will be a continuation of the Bull Market that started at 667 on 3/6/09, and the next significant bear cycle will begin in late 2012 or early 2013. The odds for that scenario are much higher if the Democrats win the election, but even if the other party wins there will be another bear cycle within this secular bear market as sure as death and taxes, so don`t get caught up in the current election hype.
The SPX remains in a narrow range for the last 8 days, and the intermediate [weekly] 5 RSI remains O/B at 77.50, while the current narrow daily range has worked off the 5 RSI from 89.28 after the 2/9 1354.32 rally high, to 49.76 yesterday following a 1355.87 intraday high.
The headline risk is obviously much higher right now as the Euro zone focus escalates after the lull, but that is a positive for the day trading business because you have no overnight trading risk, and we just look forward to the next NYSE gap opening to set up those 1st hour reversals, or some some contracted volatility opening range setups. In fact, almost all of the SPX price action has been the result of gap NYSE openings both ways, and that obviously sets up the 1st hour reversal strategies, which are usually the best contra price moves of the day.
The average implied volatility in the SPX has obviously decreased significantly, and the best day trading opportunities are in those ETF`s and individual stocks with AIV`s above 30, especially in the energy sector such as XOP, NBL, NOV, and PXD to name a few. The inverse correlation with the UUP and intraday equity pattern B/O`s for day traders results in high probabilty trading moves.
The devaluation of the Dollar since the SPX 1/13/12 UUP high continues to be the market driver, and also Bernanke`s not so subtle hints that there could be a QE 3 if the economy wasn`t improving to his satisifaction, which follows his statement that the Fed will continue the low rate policy through 2014. It sounds like a “stand by my man” [Obama] 2012 election song.
However, the UUP closed above the 14 day range at the 200DEMA yesterday, and also above all it`s EMA`s. It also had a positive 5 RSI divergence when it made the current 21.84 low on 2/9/12, so a continuation advance could be a catalyst for a pullback/correction in the extremely extended major averages.
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