New Highs for the Bernanke Put Market

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 8/23/12

The SPX made a new cycle intraday high Tuesday at 1426.68, but with a significant negative divergence of “creeping price”, declining volume, and weak breadth, in addition to new 52 Week lows in the SPX average implied volatility. Those of you familiar with my Volatility Bands know this as the AIV.

The market is O/B on a momentum basis as the SPX daily chart 5 RSI hit 84.55. It is also O/B on an intermediate basis as the SPX has advanced 6 straight weeks into last week’s 1418.16 close, and 9 of the previous 11 weeks from the 1266.74 low [6/4/12] at the key price and Pi time zone with a significantly O/B condition, in addition to some Square Root and Fibonacci symmetry.

The primary tools and technical O/S condition at the time made it a high probability reversal zone, with a positive mathematical expectation of success. The result is a +12.6% gain [low-high] so far in what has become a “rigged market” as the empty suits give lip service to the so called fundamentals as the reason for the rally.

The Fed said nothing new at the FOMC yesterday but it keeps jawboning about possible QE action. This has acted as a Put under the market, and that most likely won`t change going into the election, regardless of the weak fundamentals and the do nothing action by the ECB after the Draghi jawboning.

We can expect some statistical economic lies from the Gov`t over the next few months, but that has been par for the course during the Bernanke QE failures so far to stimulate the economy and reduce the unemployment rate. However, Bernanke can`t be expected to succeed unless Washington can change the current Fiscal policy.

In the meantime, continued rising prices in the SPX with no confirmation of the technical evidence other than the Bernanke Put is opportunity to reduce equity allocations, especially if it appears that Obama will win the election. The next major cycle date is early October which will be significant as they all are.

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