Listen to what the market is telling you

Kevin Haggerty is a full-time professional trader who was
head of trading for Fidelity Capital Markets for seven years. Would you like
Kevin to alert you of opportunities in stocks, the SPYs, QQQQs (and
more) for the next day’s trading?
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In Monday’s commentary I
said we start the week with the OIH the most oversold
, with a 5 RSI
of 18.11 and the key 7-month support zone at 130, which is where it closed
Friday (7/21/06). It opened Monday at 130.30 and hit 139.62 yesterday, closing
at 139.46, for a +9.3% gain in two days. The OIH and component stocks were
trader-friendly on Monday but not yesterday due to the significant gaps up on
the opening and not much pullback. I also said in that commentary that the minor
support levels held last week on a closing basis for both the SPX and $INDU, so
there might be a month-end bounce this week, which would force some short
covering. That is what we have gotten, with the SPX +2.3% so far this week.

The recession/slow economy defensive posture is
clearly defined by the Generals as they anticipate the bear cycle. The SPX is
+1.3% over the past month as of Friday, 7/21/06. The outperformers have been
utilities, healthcare, consumer staples and energy, while the underperformers
and all negative for the past month are: technology, industrials, consumer
cyclicals and basic materials. It is Stock Market 101 when you look at the
reality and not listen to the empty suits with their own agendas–all of which
are up. You know the syndrome: good news sells stocks, bad news doesn’t. UPS
(-10.3%) was downgraded yesterday by Merrill Lynch and was -15.9% at one point
to 67.25 before a lift into the 71.49 close. This sent other transport stocks south,
like EXPD, -4.0%, NSC, -3.6%, and BNI, -3.3%. The CEO told us he sees a
slowdown. What a surprise!

The good news/bad news reactions will continue as the major indices are easily
gamed by the futures players. At 2:45 p.m. yesterday the SPY was flat  and
had been trading in a range between 1261.90 – 1257.20 from 10:35 a.m. to 2:45
p.m. The 200-day EMA is 1260.44 and 233-day EMA, 1255.92. There has been lots of
trader-friendly price action around this zone since 5/18/06. The 2:45 p.m. bar
was game time at the casino and the SPX was taken up to a 1272.39 intraday high
before closing at 1268.88, +0.6%.  NYSE volume was 1.74 billion shares,
volume ratio 73 and breadth +1169. The OIH led at +4.0%, with the XAU +2.7% and
SMH -1.7%. If the energy stocks were to head south, you can kiss the SPX goodbye
in this current market posture. The transportation average was -1.8%

Daytraders continue to focus on the above-the-line
stocks (>20, >50, >200) in the outperforming sectors, and on the days the SPX
goes red, stay with the below-the-line stocks (<20, <50, <200) in the
underperforming sectors.

Have a good trading day,

Kevin Haggerty