Short-Term Buy Zone in Bear Market
Kevin Haggerty is a
full-time professional trader who was head of trading for Fidelity Capital
Markets for seven years. Would you like Kevin to alert you of opportunities in
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The SPX is -5.4% year to date, and is -4.0% so far in this key time period
from 1/4-1/11. The downside magnet for the SPX was the 1406.70 head and shoulder
neckline close, and that was taken out yesterday with the 2:30 PM knife down
with the SPX falling from 1424.89 to a 1388.30 low, and 1390.19 close. The
unfolding of this bear market is no surprise for frequent readers of my
commentaries. The SPX is -11.9% high to low so far, after yesterday’s decline.
The SPX head and shoulders chart is a weekly chart, but the head and shoulder
numbers are the actual lows and highs from the daily chart, while 1406.70 is a
closing daily price.
To catch up with my market view for 2008, read the 12/28/07 (The Early
Warning Signs for 2008) and also the 1/2/08 commentary (Traders View for 2008).
They highlight many of the technical divergences in sectors and foreign indexes
that topped out in June/July 2007, in addition to the IWM. There are also
negative divergences in the SPX equal-weighted index that failed to confirm the
SPX capitalization-weighted index new high to 1576, in addition to the $TRAN
failing to confirm the $INDU high, plus the many momentum divergences. I have
said many times that the highest probability is for new market lows for 2008, as
the bear cycle continues to unfold, and we would start 2008 with an expanding
housing decline, rising oil prices, tighter credit and sinking consumer
confidence, all of which will most likely lead to a sharp decline in corporate
profits in the first half of 2008. The analysts were already cutting 2007
estimates, and will be lowering 2008 Q1 estimates as well. I also said that
volatility will increase in 2008, as the global economy slows and earnings
disappoint, in addition to tighter credit in both the U.S. and global markets.
The market was short-term oversold trading into the 11/26/07 1406.10 low, and
again into the 1/4/07 1411.63 low. The bounce off the head and shoulder neckline
was only to 1430.38 yesterday, followed by the so-called T-meltdown, due to a
CEO’s statement about slowdown as people fail to pay their phone and cable
bills. Telephone declined -10.6% immediately, but then bounced to close at 39.16
(-4.6%). VZ had dropped -8.2%, but closed at only -2.2%. That was just a free
ride for hedge funds hitting bids on minus ticks, because as of 7/6/07, the
uptick rule was eliminated, and it is simply a license to steal. "They" blew out
the bids on minus ticks, and that forces the buy side traders to hit the
algorithm buttons to sweep the street and take out any bids, with their
portfolio managers over their shoulder, with the sell first mentality, ask
questions later. The sell programs were then triggered, and the end result was a
mini-meltdown.
The herd is chasing the pharmaceuticals, utilities, and other defensive
issues like KO, PEP, MO and BUD, to name a few. The energy stocks will remain
overweighted by the Generals despite any global slowdown for the obvious
geopolitical reasons. The major indexes (except IWM) held up quite well in light
of the 2007 bear market carnage in the $BKX, $XBD, XLF, XLY, SMH, IYT, IYR, XRT,
RTH, and IWM. The initial bounce was from the SPX head and shoulder 1406.10
neckline, but now, yesterday’s 1388 low has hit some price symmetry from
1387-1384, which includes the .236 retracement to 769 from 1576. The 1387-1374
zone is a key price zone, while the 1-year -2.0 Standard Deviation channel band
is about 1406-1407, with the -3.0 Standard Deviation level at about 1375. This
is a short-term buy zone for traders, and this week is a key time period, so
there is symmetry.
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.
Have a good trading day and Happy New Year,
Kevin Haggerty
