The Month End Manipulation Carries Traders

June 4, 2007
Kevin Haggerty

Kevin Haggerty is a full-time
professional trader who was head of trading for Fidelity Capital Markets for
seven years. Would you like Kevin to alert you of opportunities in stocks, the
SPYs, QQQQs (and more) for the next day’s trading?

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The SPX confirmed the month-end month bias in a
primary uptrend (5/29 commentary) and finished the first day of June at a new
1536.34 closing high. This was +0.4% on the day and +1.4% for the week, while
the $INDU was +1.2% to 13668. The QQQQ was +2.0% on the week, led by the SMH,
+2.0%, which had pulled back to its 9-month trading zone (35.95 high) with a
35.89 low on Wednesday, but bounced to 37.25 (+4.5%) by Friday. The price zone
opportunity was duly noted in the trading service in anticipation of a move.
NYSE volume was 1.48 billion shares on Friday, with the volume ratio 71 and
breadth +1114. The SPX has now closed up 5 straight days, and the internals are
now short-term overbought, with the 4 MA’s at 66 and +961.

The key magnet that will be taken out before any
significant decline is the SPX 1552.87 3/24/00 bull cycle high, which is just
16.53 points away (+1.1%), an easy target if the up-bias for the last 3 days of
May first 5 trading days of June continues to play out. However, the SPX futures
are -5 points this morning at 7:15 AM ET, with some hype on another dip in the
China market. The direction on the open is not as significant to daytraders as
how extended the move is, because then the key 1st Hour reversal strategies set
up. A prime example was on Friday, as the SPX hit 1540.56 on the 10 AM bar,
versus the +1.0 Volatility Band at 1539.70, which gave traders a short entry at
1539.57. It wasn’t a big move, but it did trade down to 1532.24 before closing
up at 1536.34. The same move on the SPY was 154.25 to 153.51. In addition to the
+1.0 Volatility Band, there was also longer-term symmetry in play like 1539,
which is a 270 degree angle from the 768.63 10/10/02 bear market low, and 1536,
which is the 3.146 Fib extension of Wave 1 (768.63-954), measured from 954. The
Volatility Band was the intraday symmetry, in confluence with longer-term
symmetry, so there was a higher probability for the contra move. This is just
part of the methodology I incorporate in all of my strategies, whether it is day
trading, swing trading or longer-term market positions.

The 1552.87 high is the obvious all-time high
magnet, which "they" will take out. But as the major indexes push to new high
territory, they are led by a much smaller universe of stocks, and their new high
average has continued to decline for the last 5-6 weeks, as well as the negative
divergence in money flow. The current rally is 55 trading days old, the SPX up 5
straight days, and the short-term internals overbought, so that is not what you
call a short-term trader’s edge. The energy sector continues to be a primary
daytrading focus, as both the OIH and XLE are trading in 10-day ranges at their
rally highs, while the intraday volatility continues to provide many
opportunities. The sector is still the most significant contributor to
daytrading results. So far, the equity market has ignored the rising interest
rates and many of the obvious negative economic and financial conditions, but
that will not be the case for much longer. The TLT has broken the head and
shoulder neckline below 86.60 (see chart) and has declined for 4 straight weeks.
I have included the significant downside symmetry zone on the chart, which
includes the head and shoulder pattern objective, Fib extensions and square of 9
key levels from the 96.26 high. It looks to me like rates are going higher, and
that is in concert with the inflationary/recession scenario that non-biased data
sources indicate.