The EU Summit Will Solve What?
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.
Commentary for 10/28/11
In a Trading Service commentary for 10/25 I said that “there were 5 trading days left in the month with the SPX +10.8% MTD, so unless there is a major negative surprise coming out of Europe this week the Generals will not be sellers and there will be no 10/30 symmetry right shoulder pattern formation and significantly O/S market” .
I also said that only a positive Euro Zone surprise this week would result in a challenge to the primary resistance, which is the H&S neckline drawn through the 1249.05 and 1258.07 lows which extends to 1275 and the 200DSMA at 1274.24. I had indicated that that resistance zone should be sold, especially since the SPX has rallied +20.2% in just 17 days and obviously extremely O/B.
However, the SPX opened up +33 points yesterday on the Euro-Zone news about the EU summit results, which is the first time there has been anything specific, not to say it will save anything but rather postpone the inevitable. The CAC 40 was up over 5.0% and the DAX just a touch below 5.0% before the NYSE opening. The USD was down big with the XEU up as was Crude oil as it trades versus the USD.
The SPX hit 1275.18 on the 9:35AM bar and that was sold by most TS members and it declined -10 points to 1265. The +2.0 VB was 1274.57 so that was an extreme opening, but a bonus for day traders. Around noon the SPX B/O above 1275 taking out the resistance so some bought it and it traded up to 1292.66 on the 3:25PM bar versus the +3.0 VB at 1292.36, after which it traded down to 1279.51 and the closed at 1284.59 [ +3.4%] It was a very positive day for day traders, twice on the short side and once on the long side when it took out the resistance.
After the SPX made the 1101.54 low at the .382RT to 667 from 1370.58 on 8/9/11 and traded up to 1230.71 [8/31/11] on a mark up into month end, I said that the market would still make new lows with the SPX taking out 1101.54, which it did on 10/4/11 to 1074.77, or -12.7% from 1230.71 and -21.6% from 1576. I said the monthly 5RSI was then O/S so a technical bounce would be no surprise, but I also said that I thought the SPX would then trade down to at least the 1019 .50RT zone to 667 from 1370.58. However, the SPX went vertical from 1074.77 on continuing Euro Zone expectations as the USD declined, and is now +20.2% low to high as of yesterday on a vertical advance in 17days from 1074.77.
Nothing really happened at the EU summit that hasn`t been discussed or known prior to the meeting, and after the meeting there remains many questions as to how and when, so yesterdays reaction to me seemed extreme. The breaking of resistance forced significant short covering and from a technical standpoint it was certainly an emotional catalyst that forced investors off the fence that were light equities, in addition to the fact it is also month end. We saw similar emotion into the August month end.
Nov starts the strong seasonal period, but there could very well be an inverse market move after an unsustainable +20.2% SPX vertical advance in 17 days that started 0n 10/4/11, a seasonal weak month.
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