SPX Wave 3 Advance or Not?
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.
In the previous commentary I said it was hard to believe any of the news coming from the financials, or the Government spin on their financial condition, especially the stress test which is a farce. I pointed out that the new FASB “mark to market” rule change will enable banks to value assets using their own internal guidelines, which would essentially let them hide their losses, show artificial earnings, but the toxic assets wouldn’t go away.
In order for the toxic asset plan to work the banks have to start lending, and that is not happening, as indicated in news yesterday, to any significant degree. Also, JPM and a few other major players said they would not play the game in the Geithner toxic asset plan, which tells you something about the plan. The news yesterday highlighted the reality that banks are not lending, commercial real estate and consumer loans are imploding, the housing decline has more to go, and banks will need more capital for future write downs. To top off the day, the Government announced that it will gain more control of the banks by converting PFD stock to common stock, which is no more than nationalization.
The SPX was obviously extended in price relative to time as it hit a 875.63 high on Friday, which is a +31.3 gain in just 29 days, and this was similar to the +29.3 advance from 741 (11/21/09) to 944 (1/6/09), which was also a 29 day advance, so there was symmetry. The rubber band snapped yesterday as the SPX was -4.3 to close at 832.30, which is the biggest one day decline since the -4.7 decline on 3/2/09, followed by the -4.3 day on 3/6/09 with the 667 low. It was obviously a broad decline led by the financials with the BKX -15.4 and XBD -7.3. The SPX 832.39 close yesterday reversed the previous 5 lows, in addition to the 3 previous swing point highs not to mention that it gave up all 3 of the “funny money” afternoon moves from Wednesday into the Friday option expiration.
If the market is to mount a Wave 3 advance, and I think it will, but only after there is a correction of some degree to the 667 low. The obvious Fib levels are: .236 826.34, .382 795.85, .50 771.21, .618 746.57 You can’t know the duration or extent of a move, but a minimum correction should be to at least the .382 RT level, and in this case I would say the odds favor the 771-747 zone. If the SPX takes out the 875.33 high after a Fib correction, it will force money into the market in fear of missing the Wave 3 leg.
In the previous commentary there was an error in the second paragraph, and it should read secular bear market, which we are in, not bull market
Have a good trading day!
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