The best way to play any month-end rally

Kevin Haggerty is a full-time professional trader who was
head of trading for Fidelity Capital Markets for seven years. Would you like
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Yesterday’s action was
erratic at best, with the SPX having a two-trend day
yet finishing
unchanged at 1240.12, while the $INDU was +0.3% to  10,975, QQQQ, +0.1% and
the $COMP -0.2%. The internals reflected this no-decision day with a volume
ratio of 43 and breadth -397. NYSE volume was on the light side at 1.49 billion
shares. In the sectors, gold led, with the XAU +2.2%, while the OIH was -2.4%.
Most of the other sectors were non-descript. The intermediate downtrend remains
intact as the major indices continue to channel in a measured range. The Dow
closed above its 200-day EMA of 10,950, while the SPX 200-day EMA is up at
1261.75. There have been three pullback days since the +2.1% wide-range bar day
from the 1219.29 low to the 1256.13 close. The SPY (index proxy) volume has
continued to decline and was only 65.5 million shares yesterday, which is the
lowest since 5/26/06. This is a positive relative to the intermediate price
decline. The SPX has retraced 50% of the 1219.29 to 1258.64 advance.

There are eight trading days left into month end, which is a six-month report
card for the Generals so the short-term trading probability is up for the SPX,
at least into the 1256 – 1262 zone. The .382 retracement to 1326.70 is 1260.32,
downward channel line 1265, and the .50 retracement, 1273. (see chart). The
Generals are expected to make the SPX close positive for the six months, which
is above last year’s closing price of 1248.29. The SPX has the most significance
because that is the primary performance measurement for the Generals, which
about 85% of them can’t beat (go figure).

The commodity sectors have had significant retracements, with the $CRX (MS
Commodity Related Index) declining 21.3% to its 200 – 233 EMA zone. It closed at
529.78 and there can be no change in direction until the 549.57 swing point high
is taken out on a closing basis.

Daytraders will be better served playing any
month-end rally with the index proxies, especially the SPY and selected
commodity stocks.

Have a good trading day,

Kevin Haggerty