The Generals Will if They Can for Q3
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.
The FOMC statement on Wednesday was nothing more than what Bernanke has been saying in the press, etc., for the past two weeks. The most important of which is that interest rates will remain low for quite some time. He also reiterated that the recession is over, for whatever that means. I guess it is a propaganda plug for the current administration, but he also essentially said that jobs growth would be very slow, which when translated means he sees a “jobless recovery” over the near term.
If things were so rosy he wouldn’t have to keep repeating that he will keep interest rate low for a long time. The bottom line is that he doesn’t have a choice in order to prevent the “Derivative Meltdown” from accelerating again.
The SPX spiked immediately to a new 1080.15 rally high on the 2:15 PM bar on Wednesday after the FOMC statement and then reversed with the dollar (UDN) in a knife down to the 1060.87 close. The UDN, which is the inverted dollar ETF, and the SPX, continue to trade with strong correlation, as I have pointed out in previous commentaries. The SPX advances on a declining dollar, as do the commodity sectors, and this continues to be a goldmine for traders.
There was continuation weakness yesterday as the UDN took out the previous low on the 10:00 AM bar, and the SPX made new intraday lows on the same bar, and then eventually made a 1045.85 intraday low, before closing at 1050.78. You can see the obvious correlation in the SPX and UDN 5-minute charts.
Figure 1: SPX
Figure 2: UDN
Trading Service members knew that 9/23 was a key time date, so they were well prepared to take short advantage of the “funny money” spike to 1080.15 on Wednesday when the UDN made a 3 bar reversal on the 2:40 PM bar.
The SPX has declined -3.2% from the 1080.15 high to the 1045.85 low in two days, with current minor support at 1040, and the 20DEMA at 1043.30. Next Wednesday is the last day of Q3, so the odds favor the Generals trying to reverse this market to the upside in the next few days, or at least hold the levels and prevent any significant decline. As of the 1050.78 close yesterday, it is a +14.3% Q3 so far, as the SPX went out at 919.33 at the end of Q2.
I expect the correction to continue after any mark up bounce for Q3, especially if the USD (US Dollar Index) rallies into the current resistance at 78, but after that I still expect it to hit the 1121 key price zone, which is the .50RT to 1576 from 667.
Have a good trading day!
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