Market Symmetry Red Alert
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 12/10/10
The SPX finished last week on three straight up days to finish the week at 1224.71 or +3.0%. It is up three of four days this week, and 6 of the last 7 days. It made a 1219.80 high on 4/26 versus the 1228.28 .618RT to 1576 from 667, and then declined -17.2% to the 1010.91 7/1/10 low. The SPX then made 1227.08 high on 11/5 and traded down to 1173, which was the low of a 10 day trading range above the 50DEMA. Yesterday was the first SPX close [1233] in 8 months above that 1228.26 level, so the .618RT level has obviously been, and is a key zone.
The sovereign debt problem in Europe is a crisis that is not going away, and will not end well, so it will be ongoing headline news that will affect our markets periodically. The market`s perception was that the Democrats would roll over and all the current tax rates would be extended after the mid-term election debacle for the Democrats. Obama clearly didn`t want too, but agreed to a two year extension of the tax rates, but also got a second stimulus, which he would never have gotten when the Elephants take over Congress in Jan.
The current proposal [not passed yet] is for a Payroll tax deduction that would reduce the 6.2% Social Security payroll tax applied to employee wages, and a renewal of emergency unemployment benefits. It also included some American Reinvestment Act smaller tax credits enacted in 2009 that Obama wants to extend like the earned income tax credit, and various education-related tax breaks. Bottom line is it means larger deficits and a wing and a prayer that the economy will pick up enough jobs to grow the economy. The proposed tax rate extension deal is only temporary for 2 years, and Obama has already said he would try and raise the top bracket again in 2012, and fight the “hostage takers” that forced his hand. He hasn`t lost his community activist, or union loving stripes.
Bernanke has said that QE 2 will be open-ended as needed, which is further monetary stimulus, and that is now followed by another fiscal stimulus which has reduced the fears of a double dip 2011 recession. Most economic analysts are already raising estimates for 2011 if the deal is passed as is, but the next time those analysts are correct will be the first time. Playing the market based on what any economist says is the surest way to lose money. Politicians love to quote them when it suits their political agenda, in addition to blaming the Fed for the Govt`s inept ability to manage the economy and all the previous mistakes regardless of what party is in charge.
The 1200-1173 10 day range was obviously resolved to the upside, but just closing above the 1228.26 level is not a B/O of the zone There is a key time period in early Jan 2011, and then again on 5/17/11 and 6/13-6/15 of 2011. Those are significant long term symmetry dates, and possible key reversal zones depending on how the market approaches those dates [O/B or O/S]
The current key SPX price zone is 1228-1250 [which is the H&S price objective], and this is month 21 from the March 2009 667 low. The market hit a high in April 2010, which was month 13 from the 667 low, and then traded down -17.2% in 3 months to the 7/1/10 1010.91 low, and this is month 5 from that 1010.91 low. The price action is all about Fib symmetry since the March 2009 667 low, and that is a red alert for the early Jan 2011 longer term symmetry.
Favorite trades continue to be long the TBT, GLD or IAU, and short the Euro versus the USD on Euro strength versus the dollar.
Have a good trading day!
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