Mr Ben Has His Foot on the Pedal and Dice in His Hands

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 3/27/12

The SPX was +0.3% Fri after 3 straight down days, and finished -0.5% on the week to 1397.16, which was only the second red week of the last 12 The index was -1.9% to the 1386.87 low Fri and finished in a positive 1-2-3-4 daily chart pullback position after the 4 day pullback.

The previous pullback from 1378.04 [2/29] to 1340.03 was also 4 days and only -2.8%. In the Trading Service commentary Fri after the positive SPX 1234 pullback close I stated the obvious, “With the strong gains for 2012, there will be no surprise if the Generals get a little aggressive in the QTR ending window dressing next week, headline news permitting, especially with the SPX in good daily chart position to close the week. However, that doesn`t change the O/B 5 RSI condition on the weekly and monthly charts coming into the negative seasonal period.

The SPX had the 2 most significant declines in this bull cycle that started in April, with the first one after the 4/26/10 1219.80 high that declined -17.3% to 1010.91 [7/1/10], and the second from the 5/2/11 1370.58 high, with the high close on 4/29/11, which declined -21.6% to 1074.77 [10/4/77] That will make it hard for many investors professioinals not too take some money off the table anticipating more than a mini pullback after the QTR ends.

However, Bernanke`s statement yesterday that short rates would remain near zero through 2014 because of the structural unemployment problem and creeping economic growth sent the SPX to new rally highs to close +1.4% to 1416.51 as the USD declined while Gold, Siver, and Copper advanced.

The market reaction yesterday assumes [ and has from day one] a QE3 following the conclusion of Operation Twist in June, as Bernanke continues to force money into the equity market, while the Fed balance sheet is at all time highs in the vicinity of $2.3 trillion. The USD and the TLT declined, while Gold, Siver, and Copper rose. Fundamentals are just lip service by the investment community, but the reality is Bernanke`s actions are the primary accelerator of this market. The current NED Davis research report pointed out last week that “The SPX total earnings growth drops from +7.8% year over year with AAPL to only +2.8% without”, so MR Ben had better keep artificially forcing investors into the election year equity market.

Regardless of the declining volatility, the headline news still creates extended volatility opportunities for day traders, especially in the commodity sectors, and also in the case of the TLT yesterday` when it sold off to the -1.5 VB and reversed. The average implied volatility of the TLT at 15.12 is higher than the SPX which is 12.25, while the XME is 30.50, GDX 27.70, XOP 27.88, GLD 16.73, SLV 30.63, and IWM 19.40 There are also opportunites in individual big cap focus stocks in good daily chart position that have twice the IV of the SPX, so if your day trading horizon reachs beyond the SPX and E-mini futures you have plenty of day trading opportunities.

SPXDP chart

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