Key Sector Risk for the $SPX
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. Mr. Haggerty is a co-founder of Tradingmarkets.com and is the founder of www.KevinHaggerty.com.
The $SPX had a great travel range for daytraders yesterday with a “V” move from 1423.40 to 1440.24 on the 1:25PM bar, and then the programs hit and it declined to 1421.63 before closing at 1426.63. After an option expiration there is usually a move in the opposite direction, but it usually happens on Tuesday because of the Monday expiration settlement.
The advance yesterday morning was initiated with the Opening Reversal strategy (O.R.) in the major indexes, and the afternoon reversal was from the Volatility Band levels that are published in the trading service each day, so daytraders familiar with the strategies, and/or are members of the Trading Service had an excellent trading day.
For example, The SPY ran from a 142.81 OR entry to 144.23 versus the +1.28 VB 144.20, and the 144.04 short strategy entry from 144.04 declined to 142.32. If the +1.0 VB entry was taken first at 143.92, it was stopped out at 144.07 for a -.17 loss.
The QQQQ and DIA had the same setups in both directions, or else you might have used the futures instead, because they are traded off the cash market, not as a stand alone as much of the bogus trading advertising would have you believe.
NYSE volume was only 1.14 billion shares yesterday, but “they” still managed to close the $SPX and $INDU green because of a little bump in the market-on-close (MOC) session from 3:40-4:00PM. The rising price and declining volume scenario won’t hold up much longer without a significant correction, and the way this rally has continued to advance, it seems as if the PPT (Plunge Protection Team) is doing its best to prevent one as Treasury Secretary H. Paulson continues to jaw bone the economy, despite the negative derivative meltdown and housing deflation news, not to mention rising crude oil and food prices.
The Energy and Materials sectors have carried the $SPX this year, and there was an interesting article on Bloomberg news yesterday about the energy earnings relative to the S&P 500 total earnings. It said that “without the $70 billion in oil producer profits from Exxon
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PowerRating), Chevron
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PowerRating), that the rest of the S&P 500 profits are -26% and -30.2% in the last two quarters. Energy companies make up about 50% of the income growth in the S&P 500 for the first three months of 2008″, and that is not a positive for a sustained advance.
Both the energy and materials sectors are very extended, so any reversal in these sectors will put immediate pressure on the $SPX. I included the one year STDV charts for both the XLE (energy), and XLB (materials), and you can see that they are both out to their +2.0 STDV levels, and a reversal is the highest probability as volatility will revert to the mean. At the same time, the $SPX made a 1440.24 intraday high yesterday, versus the 1454 .618RT to 1576 bull market high from 1257, so you couldn’t have more of a red alert for a near term reversal.
The next commentary will be Friday 5/23/08. The regular commentary days are Tuesday and Thursday, unless there is a travel problem, but I will give you a heads up if there is a change.
Check out Kevin’s strategies and more in the 1st Hour Reversals Module, Sequence Trading Module, Trading With The Generals 2004 and the 1-2-3 Trading Module.
