Recession Denial and Market Reality
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 8/23/11
The SPX was -1.5% to 1123.53 last Fri on NYSE volume of 1.51mm shs, with the VR 15, BR 24, and A-D of 1576. It finished -4.7% on the week, which was the 4th straight weekly decline, and it was all about fear of the Euro banking crisis and possible contagion to the US banks, in addition to the heavily weighted evidence that there is a global recession. Fear was the weekly leader with the GLD 5.9% on the week and TLT +5.4%. The commodity sectors, transports, financials, and semis` led the downside on the week.
The TRAN, BKX, XBD made new cycle lows and closes last week, as did the OIH and SMH, while the QQQ, COMPX, and IWM made new cycle low closes, as did the XLI led by major Dow industrial stocks like CAT, UTX, and MMM. Also, HPQ, which is another DOW stock, imploded at -20% Friday, which is the lowest daily low since 7/25/05. Other DOW stocks making new cycle lows and closes were INTC and AA.
The SPX made 5 day +9.7% move from the 1101.54 8/9/11 low to the 1208.57 high on 8/17/11, and then declined -7.2% in 3 days to the 1121.09 intraday low yesterday before closing at 1123.82 I said in the Trading Service that the odds favored new lows for the SPX this week, but there was a positive for a retest scsnario in that most of the new cycle lows and closes have higher 5 RSI`s than at the previous extreme O/S lows, in addition to the “Herds” hope that Bernanke has some magic wand market saving solution at the Jackson Hole Conf. on Fri. Don`t hold your breath.
The SPX opened up +2.0% yesterday to 1145.49 on the opening bar following the gains in Europe in the absence of anymore ugly Euro debt or banking crisis news over the weekend, and the Libyan situation, which to me means bumkus relative to the US equity market. However, that SPX opening bar high proved to be the intraday high, and it closed at 1123.82 When I first checked the SPX futures at 5:55AM this morning [EST] the CAC40 was +1.9%, DAX +1.8%, DOW futures +145 points and the SPX futures +17.60 points. However, as I complete this commentary at 9:00AM the SPX futures are only +4.1 points, DOW futures +52 points, while the DAX is only +0.4% and the CAC40 +0.8%.
The SPX average implied volatility of the at-the-money call and put remains high at 36.63 today, with the QQQ 37.95, IWM 45.68, OIH 51.27, XLE 46.51, XME 55.74 This is all positive for day trading, especially when the high frequency trading accelerates the market, in addition to the ridiculous electronic execution opening prices on most of these volatile days.
In the absence of overt news in Europe or some unknown magic rain dance in Jackson Hole this Fri, and I can`t imagine what either of those might be. I think that the odds still strongly favor the 1101.54 low getting taken out, especially when denial becomes reality about the recession that we are already in.
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