New Levels and Increased Volatility Mean Multiple Opportunities
Kevin Haggerty is a full-time
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The 3rd largest 1-day SPX decline this year, at
-1.8% yesterday, was accelerated by the sharp decline in bonds (increase in
yields). The TLT had declined -3.3% in 4 straight down weeks, and is -2.1% this
week so far and -5.4% since the weekly decline started. The TLT head and
shoulder pattern discussed in the May commentary was broken below 86.60 on 5/24
and has a price objective of 81.40. There is also significant symmetry in the
81.40-78.10 zone. The TLT made an 83.73 intraday low yesterday and closed near
the low at 83.87. This is a significant change, so the bond market now controls
the equity market more than we have seen during this current bubble of 64
trading days from the 3/5/07 close to the 1540.56 high on Friday, 6/1/07. Those
of you who read this commentary on a regular basis have read about the symmetry
between this market and 1987. It is interesting that the 1987 final bubble move
to the top was 67 trading days. The other significant symmetry for this week was
that Wednesday was calendar day 7225 (natural square 85) from the 8/25/87 bull
market top. A significant change in interest rate pressure in a slowing economy
(despite what the spin doctors say) is an obvious catalyst to finalize this bull
market cycle. The Wednesday commentary (6/6/07) titled "Time Takes Precedence
Over Price" is a summary of the obvious time vulnerability of this bull cycle
based on data from over the last 50 years. I suggest you read it if you haven’t
already.
NYSE volume expanded to 1.9 billion shares (1.78
billion shares down) yesterday, with the volume ratio below 1, while breadth was
-2787. When there is pressure on interest rates, like yesterday, the breadth
numbers will be skewed because over 35% of NYSE issues are financial listings.
All sectors were obviously red, led by the $HUI -3.3%, XBD -2.7% and $TRAN
-2.4%. Crude oil ($WTIC) is back to the top of the 67.10-60.85 range, closing
yesterday at 66.95 (+1.5%). The $US dollar index advanced +0.5% on the increase
in interest rates. The SPX closed at 1490.72, right at the 50-day ema (1492),
and the initial downside retracement levels and symmetry from 1540.56-1364 is
1475-1470, followed by 1462 minor support, and then the .50 retracement at 1452.
The good news for daytraders from this sharp move
to new levels and a new fear element taking the lead is that there will be some
sharp volatility moves both ways, and this means multiple trading opportunities.
In addition to the bond factor, there is the big June option expiration next
week, and that also brings into play the 6-month report card factor for the
institutions. Also in play now is how the PPT will react to any more short-term
equity selling pressure, and from what we have seen in previous situations, they
will be a significant factor in the obvious up-side bounces. The 1527.35
all-time SPX closing high has already been taken out, but unless the bond market
pressure changes, the 1552.87 intraday high is not the same easy task it looked
like last week.
There is some significant time symmetry next
week, and we will approach it with an extremely short-term oversold condition,
so it is ideal for the PPT to ignite a bounce into the significant 6-month
report card and big option expiration. The last significant move down was from
the SPX 1461.57 top on 2/22/07, and that had time symmetry with weeks 360 (2/15)
and 361 (2/23) from the 3/24/00 1552.87 top. 360 is a key Gann number, and 361
is a Natural Square number. Next week is also number 377 (Fib) from that same
3/24/00 high, so the market will most likely make a sharp bounce if the bond
market quiets down. Either way, there will be 2-way volatility, and that
increases the RST and Volatility Band opportunities even more than they are now.
Have a good trading day,
Kevin Haggerty
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