Reversal Symmetry and Negative Divergences
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The SPX was +0.2% to 1471.48, $INDU +0.4% to
12773, and QQQQ +0.2% to 45.15. However, the only sectors that finished
green were the RTH +0.7% and PPH +0.4%. The generals have acted like a herd, as they bought the drugs in light of a slowing economy, with the PPH up 11
straight days. When sales tax receipts stop declining, we just might
believe a plus retail sales number put out the government. But that is not
happening yet, so the retail sales numbers are bogus. The retail stock
surge has a short shelf-life, despite what CNBC might hype, and are good shorts
on strength, if “they” push them higher here short term. The red sectors
were the XBD -1.5%, OIH -1.0%, $HUI -0.9%, XLB -0.9%, $TRAN -0.4%, SMH -0.2%,
IBB -0.1%, $BKX -0.5%. In addition to the negative sector divergence
yesterday, the internals were also weak relative to the indexes, with the volume
ratio 50 and breadth -97. NYSE volume was 1.57 billion shares. With
these divergences yesterday, you would anticipate a reversal today, but it is an
option expiration week, and some of that erratic price action yesterday was
probably option related.
The $US Dollar continues to make new lows,
closing yesterday at 81.80, and approaching the 80.39 10-year low. This is
the sixth time since 1978 the $US Dollar has tested the 80 zone, and it is
obviously oversold, so a rally from this zone should be no surprise. We
better hope for a rally, because the equity market will not respond well to the
long-term head and shoulder neckline getting taken out below the 80-78 zone.
The market is short-term overbought, with the SPX
5 RSI going out at 84.71, while the 4 MA’s of the volume ratio and breadth are
67 and +792. In addition to that, the SPX is +8.1% in 23 days, following a
-6.7% 14-day decline from the 1462 high (2/2207), so there is a 1.618 Fib time
ratio in play. There is also a long-term Fib calendar day count (2584)
from the 3/24/00 SPX 1553 high in play, that is +/- 2 days around 4/21/07, so
the reversal probability is high, especially in light of the current negative
weekly momentum divergences, despite new highs in the SPX, which is now at an
extended 3-month standard deviation level.
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.