Traders focus on energy and metals

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? Click here for a free one-week trial to Kevin Haggerty's Professional Trading Service or call 888-484-8220 ext. 1. 

The last mini one-day meltdown was 1/20/06 and the $SPX was -1.8% and the $INDU, -2.0%. NYSE volume that day was 2.1 billion shares, with a volume ratio of 16 and breadth -1340. That decline was from the key price zone high of 1295, which had other symmetry, including the 1296 natural square level. Yesterday's knife down in this final Wave 5 of the current bull cycle comes at another key price zone. The .707 retracement to the $SPX 1552.87 (2000 bull cycle high) from the 10/10/2002 bear cycle low is 1323 and the 2.618 Fibonacci extension of the Wave 4 leg is 1328. The current SPX cycle high is 1326.70. It is an anticipated zone, so you should never be surprised that there is a price reaction for a reversal of some sort from the current trend. There was also some time confluence, as yesterday was 144 days from the 10/13/05 1168.20 low and 89 days from the 1/3/06 1245.74 low. The market action action yesterday ended with the $SPX -1.3%, $INDU -1.2%, QQQQ -2.5% and the $COMPX, -2.1%. NYSE volume was 1.87 billion shares, with a volume ratio of 16 (1.52 billion down) and breadth -1909. All sectors were red, led by the brokers, with the $XBD -2.4% The semiconductors declined for the fourth straight day, with the SMH -1.6% and is -5.0% for the four-day period. The scenario was the same: interest rates up, with the 10-year Treasury now yielding 5.17%, TLT -0.5%, gold up, commodities up, $US down as the FXE (Euro/$US) hit another new high, closing at 128.53.

At the end of a bull cycle the most common scenario is for the economy, interest rates and commodities to keep rising as equities top. Will "this time be different" as many of the empty suits said in 2000, as did 99% of the economists who are historically the worst at any kind of timing. I woke up this morning and the first financial comment I heard was "economists say" oil prices will not affect the economy until gas gets to $4.30 per gallon. These are the same empty suits, along with most of the drones that CNBC drags on to its shows that gave dire warnings if crude was greater than $50, then $60, then $70, and now some of them are saying we can sustain $100. It's like giving eight different people the winning horse tip--one of them has too be a winner. Gimme a break.

The QQQQ hit its cycle high, so far, back on 1/11/06 at 43.31 and has since formed a head-and-shoulders topping pattern that measures to about 37.10 from a neckline at about 40.20. It closed at 40.74 with the 200-day EMA at 40.59. There is other significant symmetry around the $40 level, so if the Generals care, this is a zone where they will show it. The semis, which act the same way, has the SMH once again trading below the 200-day MA of 36.56, closing at 36.20.  The Nasdaq, which made its last cycle high of 2375.45 on 4/7/06, and a failed double top retest of 2375.07 on 4/20/06, broke 2300 head and shoulder neckline yesterday, closing at 2272.70. The 200-day EMA is 2235, with other symmetry in this 2235 - 2200 zone, including the trendline from the 4/29/05 1890 low and the 8/12/04 1751 trendline at about 2100.

The S&P future is -4.75 points at 7:45 AM ET, so the initial SPX focus will be the 50-day EMA zone at 1301 and then the 1296 - 1291 zone. The price weighted $INDU ("funny money index") closed at 11,500, but is not close to short-term oversold with the 5 RSI at 47.43 and the SPX at 32. However, the QQQQ is in the short-term oversold zone with the 5 RSI at 19.73 and the SMH at 20.52. Traders take note today. The primary daytrading stock focus remains in the gold, copper, industrial metals/minerals, steel/iron, aluminum, and first and foremost, the energy sector.  Any sharp selloff in these sectors will keep the game going. There will be more of these sharp major index moves both ways which means a good daytrading climate.

Have a good trading day,

Kevin Haggerty