What is Your Exit Plan
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 SPX was +4.5% last week on 5 straight up days to 1071.49, which is the biggest weekly gain since the +7.0% gain for the week ending 7/17/09. However, the average NYSE weekly volume was only 1.13 bill shs, which is the lowest since the week ending 7/10. The internals finished the week ST-O/B, with the 4-day MAs of the VR and breadth at 67 and +1000, in addition to various negative momentum divergences.
The declining $US dollar continues to force the major indexes and commodity sectors higher, as the HUI was +12.6% last week, with the OIH +9.2, XLE +7.9, and the XLB +6.2. Suffice to say, the commodity sectors were the leaders last week, while the USD declined -0.8%, and made a new low of 75.77. The entire SPX rally off the 7/8/09 869 low has been driven by the declining dollar. The bond market is priced for deflation, yet the equity market is trading like this falling dollar/rising equity market scenario is a good thing.
However, that is not the case, and there will be a day of reckoning, sooner than later, when the exits will be crowded in the rush to sell U.S. assets, when the declining dollar becomes a currency crisis, which is the most likely scenario under the current Administration’s spending, borrowing, and taxing polices, despite an economy that remains on the floor. The “Recession is Over” spin by Bernanke and the Government doesn’t have much credibility in the real world of people trying to make ends meet etc.
NYSE volume was 990mm shs Friday, and only 947mm shs yesterday, which was a bank holiday. The SPX has advanced 6 straight days on this bounce off the 50DEMA, and made a new bull cycle closing high yesterday at 1076.19 (+0.34), but it didn’t take out the actual 1080.15 high on 9/23/09, but can easily do that today. When the SPX range narrows like it has the last few days, there are obviously fewer good defined day trading opportunities. However, there is some time symmetry through 10/17, and this Friday is also options expiration, so the volatility should increase.
The key price zone remains the 1121 .50RT to 1576 from 667, and that is where 30% of the scale-in index proxy position bought in Feb/Mar will be taken off the table on a scale up basis starting around 1100.
Have a good trading day!
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