The Market End Game

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.

Q1 draws to a close today and the SPX is +5.2%  coming into today, and +6.2% month-to-date. The INDU has advanced 18 of 22 days this month with a +5.6% gain. The entire rally from the Feb lows has been on light or declining volume. The market has been trading like it is puppet on strings for fear reality could take hold and our own sovereign debt crisis reverses the artificial spin euphoria we get everyday from the media and Gov’t.

The S&P sector leadership since the Feb lows after the SPX hit the 1044.50 key price and time zone low has been the Financials, Industrials, Consumer Discretionary, Materials, Technology, followed by the SPX. The Utility sector has underperformed the most followed by the energy sector despite the advance in crude oil from 69.50 to 83.47 versus the previous 2010 83.95 high.

The negative correlation of the USD and equity markets has changed and now we have a rising USD and rising equity market. Over many years the US equity markets have done better with a stronger dollar.  However, I would be hard pressed to say the USD is rising because of a flight to safety, but it is more like the US is the best of the worst in the Euro zone with their sovereign debt problems front and center. The US debt problem might soon be the worst of them all, and that means higher interest rate costs for the government which will increase the deficit even more, taxes will continue to rise, business will stall, and consumers won’t spend because they have run out of money as state and local school and property taxes continue to explode. And as Margaret Thatcher said “Socialism only survives until the government runs out of other peoples money.”

The SPX is +77% low (666.79) to high (1180.14) so far and will be +84.3% if it hits, as expected, the 1229 .618RT to 1576 from 667. Suffice to say you must have a plan to reduce or hedge equity exposure and not get caught in the next big decline which is inevitable before this secular bear market is finished. The Wave 5 of this bull cycle advance off the 667 low doesn’t have far to run, so let the buyers beware, and the holders protected.

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