The Market and the Mid-Term Election

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 9/23/10

The SPX is +10.5% in 16 days since the 8/27 1039.70 low to the 1148.59 9/21 high, which was accelerated by the FOMC statement that was absolutely nothing unexpected, and in fact, it was the third time the Fed said the same thing.

The SPX broke above the 1131.24 6/21 and 1129.24 8.9 highs, so the rally was accelerated, but is now very O/B as the SPX 5RSI hit 89.42 on 9/20 when the SPX broke above the range highs, which it had bumped up against for 5 days.

In the commentary for 9/13 I said that the key catalyst for this market to sustain this current rally for a bit longer is if the perception continues to grow that the Socialists will lose the House in November, and that the Republicans will also win enough seats in the Senate to cause gridlock, and hopefully repeal some of the draconian new business regulations that keep growing with the fine print, that hardly anyone reads when these bills are passed.

The perception that will happen has obviously grown, in addition to the growing chorus from the Democrats that it just might not be a good idea to raise taxes at this time, but so far the “Community Activist” is holding his ground. On 9/22, L. Summers bailed out of the Cabinet, and he is the third key member of Obama’s team that has jumped from the sinking ship following C. Romer and P. Orszag. Now the President says he wants someone with business experience, because he had appointed all academics when he got in office. Give me a break, at $3 trillion dollars later and in front of the mid-term election he sees the light.

The current rally was anticipated in the 8/27-8/30 key time zone as the market was also S/T-O/B, and that was explained in commentaries prior to the key time period. The extent of this rally has surprised me as the mid-term rally usually doesn’t start until the end of September, and I am not sure whether this is the early mid-term rally because of the early perception that the House would change hands or not. However, the track record of the mid-term rallies is very strong in that only one has been down in the 34 years [INDU] since 1913 for the 5-month period starting at 9/30 [Alpha Management].

The SPX hit the 1140 .618RT zone to 1219.80 [4/26 high], and was obviously short term O/B, so a short position was taken with stops a little above the 1150.45 1/19/10 high resistance level. The 1140 level is also the 360 degree angle from the 1010.91 low [7/1/10], which was a -17.2% decline from the 1219.80 high.

Have a good trading day!

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