Stong negative divergence in economic sectors
Kevin Haggerty is
the former head of trading for Fidelity Capital Markets. His column is
intended for more advanced traders. Kevin has trained thousands of traders
over the past decade. If you would like to be trained by him,
ext. 1
The SPX was up about 2
points before the futures hit on the rate increase and the SPX
dropped over 10 points to 1220.07, closing at 1221.34, -0.8%. Greenspan raises
the short end 11 times while continuing to pump up the money supply. The US
dollar was up, while gold declined with the HUI -2.2%, as was the XAU. Crude oil
declined, while the gold/crude oil relationship is about 7 times (7 barrels of
oil to buy an ounce of gold) which is very low. If the dollar shows further
weakness–as the pundits seem to think–after an oversold rally, then gold will
advance to higher prices and expanding that ratio. Gold is expensive when it
takes 15-20 barrels of oil to buy gold.
The Dow
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dropping intraday below its 200-day EMA of 10,477, which is a far cry from the
SPX (the Generals’ play toy). The QQQQ was -0.4% to 38.93.
When you see how the most economic sensitive
sectors and groups are trading, you can see why Greenspan might be nervous in
thinking soft landing as he plays with the money supply while raising short
rates. Currently trading below their 200-day EMAs are the XLB (basic materials),
XLI (industrials), XLY (consumer discretionary), and RTH (retail). The XLY made
its bull-cycle high on 1/3/05 while the XLB, XLI and Dow made their highs on
03/07/05. The RTH hit a new cycle high on 08/01/05. Suffice to say, this market
action is a heavy negative. Yesterday the RTH was -2.1%, XLY -1.7%, and XLB
-1.5%. The chemicals as a group yesterday were -2.00% and are in their own bear
market condition right now. Just look at Dupont
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and Rohm & Haas
(
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PowerRating) to name a few. As a below-the-line group (BTL),
daytraders have been capitalizing on the short side.
We start today with the SPX at that first level
mentioned in yesterday’s commentary –1221 – 1219.60 and then 1217.15 – 1216.75.
The 8 AM futures are small red and crude oil up about 1.5 points, so it appears
that any initial
Trap Door action will be on the downside.
Have a good trading day,
Kevin Haggerty