Mid-term election and month-end markup
Kevin Haggerty is a
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The SPX closed the week at +0.2% to a new weekly closing high
of 1368.36 as did $INDU, +0.3% to 12,002. The internals did not confirm
the new highs, as the up volume/down volume ratio was .95 compared to the week
ending 10/13/06 when it was 1.6 (898mm/56mm). Fewer stocks continue to
push the averages higher, which is also reflected in the weekly moving average
of new highs vs the major indexes. The SPX is now +3.1% above the 5/8/06
1327 high. This is +41.6 points, and 35.8 points of that gain occurred on
just 3 days, which are 9/26/, 10/4 and 10/12. Each of these days was
preceded by two 5-day ranges and one 8-day range. The SPX is currently in
a narrow 6-day range, since the last markup day on 10/12. So with the
consensus already conceding the House to the Democrats, which, by the way, will
put Nancy Pelosi in position to be the next in line for the Presidency behind
the Vice President, it is time for another Republican markup day. When I
saw that President Bush was scheduled to interview with Maria on CNBC, I
immediately assumed he will need some backup, and that should be another markup
day out of the 6-day range. It doesn’t take much to run the futures up,
which then accelerates the buy programs, which in turn forces institutional
buyers to participate and any shorts to cover at new highs, in addition to the
retail herd that just follows price up.
Despite the current decline in crude oil, traders have been
able to capitalize on the long side, as the OIH has advanced +13% in 13 days off
the 118.19 low on 10/4/06 to Friday’s 133.60 intraday high, where it hit
expected long-term moving average resistance zone, with the 233 dema at 133.88
and 200 dema at 135.07. Most of the daytrading opportunities in this
sector have been intraday reversals using the Trap Door, RST and 1-2-3 trading
strategies. There must be some retracement before the game starts again.
You know it is a strange market when the SPX and $INDU make
new bull cycle closing highs on the week, yet on the downside for the week, you
have the semis, financials, retail and cyclicals. For the week, the SMH
was -5.4%, BKX -1.4%, XBD -2.0% and RTH -1.3%. The leadership consisted of
the drugs, with the PPH +2.6%, and energy with the OIH + 1.9% and XLE +1.5%.
Not the kind of leadership I like to see at new highs.
The midterm election prop under the market should continue,
just like you saw on Friday with the SPX and $INDU. The $INDU declined
sharply on the open due primarily to the CAT implosion, when it opened down -10%
on earnings, before finally closing at -14.5%
(
CAT |
Quote |
Chart |
News |
PowerRating). However, the DIA
reversed from a 119.33 low at the -1.28 VB on the 9:55 AM bar and traded up to
120 before closing at 119.93. The imploding stocks continue to expand.
In addition to CAT, there was
(
AMD |
Quote |
Chart |
News |
PowerRating),
(
APOL |
Quote |
Chart |
News |
PowerRating),
(
CTXS |
Quote |
Chart |
News |
PowerRating),
(
SNDK |
Quote |
Chart |
News |
PowerRating),
to name a few. With over 7,000 hedge funds chasing similar stocks, it gets
crowded at the exits, especially when the generals are also at the gate.
Expect any new crisis or negative news downside “air pockets” to be reversed for
the next two weeks, and then “good luck on your mission.” If there is
early weakness this week, expect the generals to step in for a month-end markup.
Have a good trading day,
Kevin Haggerty
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.