Market Risk: high

Kevin Haggerty is a full-time professional trader who was
head of trading for Fidelity Capital Markets for seven years. Would you like
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The SPX made up most of
Monday’s 1315 – 1303.73 futures-induced last hour knife down.
index made a new closing high Tuesday to 1313.21 (+0.6%), as did the Dow, to
11,416 (+0.6%). The major index price advance continues, with fewer stocks
leading the upside and negative divergences in some breadth and momentum
indicators. The SPX Bullish Percentage Indicator has dropped below its 200-day
EMA at 66.91 to close yesterday at 63.80, which is a new 2006 low, contrary to
the new high SPX close.

The NDX 100 Bullish percentage closed at 53, which is also a new 2006 low.

The bullish percentage strength continues to be energy, industrial and the S&P 
financial sector.

NYSE volume was 1.68 billion shares, with the
volume ratio 69 and breadth +889. The 4 MAs of the volume ratio and breadth are
55 and +318, which is weak relative to the new closing highs in the SPX and Dow.
Energy is a leading sector this week so far, with the OIH +5.7% and XLE +3.9%.
Traders continue to profit from the entire commodity sector, not just energy.
The intraday volatility continues to be excellent, which means multiple
opportunities for traders. The TLT closed at 83.42 and is short-term oversold,
so any rally from here–in addition to any more Fed hype about backing off rate
increases–will enable the “gang” to accelerate the futures for a couple of
days, forcing the shorts to cover a few shares. As much as they are trying, the
Fed will not be able to artificially stabilize this market through the mid-term
elections.  The market will most often top out as the economy, commodities
and interest rates continue to rise. Market emotion right now is in the anxiety
stage, which is usually followed by denial after the first significant
correction and re-test of the bull cycle highs. If anyone has any doubt about
the housing market, just look at the homebuilders like
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, which made a
double top in 7/05 and 1/06 with a 79.56 high and closing yesterday at 54.16,
-32%. The media’s positive housing spin and the actual stock reality is 360
degrees apart, as usual.

The market risk at this stage of the bull cycle
couldn’t be much higher, and is even more extreme when you factor in the
geopolitical situation. Most of the professional daytraders’ profits continue to
be in the energy, gold, copper, transportation, commodity-related industrial
stocks and the major brokers. That is where your concentration must remain.

Have a good trading day,

Kevin Haggerty