SPX Will Hit New Highs Before Reversing

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.

In the previous commentary (10/1/07) I said, "the SPX/$INDU are just above their .786 retracement levels to July highs, so under normal circumstances, you would expect these highs to get taken out before another significant reversal." On Friday, 9/28, the $US Dollar made new long-term lows, closing at 77.47, and taking out the 1992 78.19 low. The answer to that was a new cycle high close for the $INDU at 14088, +1.4% on the day. Once again, a negative financial event is followed immediately by a strong plus-day (PPT?). The SPX was +1.4% on Monday. The financials led that move, as many brokers and banks reported heavy losses, and the feeling was that the worst was behind relative to subprime losses, which really isn't the case. There is still no real market for all the mortgage obligations they hold, and there will be more blood going forward. The buyers are not lined up yet to bail some of the investment banks out of the various LBO credit deals they are on the hook for. The homebuilders got an upgrade Monday, and were the leaders, and did the same yesterday, led by LEN +6.2%, KBH +4.9%, PHM +4.8% and CTX +3.8%. The REITs (IYR) have also made a good move off their 8/16 lows (+18.8%). The Generals obviously put some new Q4 money to work Monday, and it was in the most oversold sectors. But they can play the average down game, they have deep pockets.

Yesterday was a pause day, as the SPX closed down less than a point to 1546.63 (-.03%), while the $INDU was -0.3% to 14047, holding the previous 14022 cycle high. The QQQQ was flat at plus a penny to 52.01, but has finished green for 9 of the last 11 days. The technology seasonal factor usually comes into play beginning in the July/August period, and the significant tops in this bull cycle starting with the 10/02 low have been in the weeks ending 12/2, 1/19, 12/13, 1/9 and 2/7, followed by very tradable declines. With the $INDU, QQQQ and $COMPX all making new cycle highs, the odds favor the SPX taking out its 7/16 1555.90 high this week, so early weakness today will most likely be followed by a contra move opportunity.

NYSE volume was just 1.27 billion shares yesterday, with the volume ratio 61 and breadth +547. The major indexes started the week short-term overbought and extended on a 3-month Standard Deviation basis. Yesterday was day 32 off the 8/16 low, so a reversal is the highest probability after the SPX 1555.90 high gets taken out. And if so, it will be probably happen from day 34-36. The major index didn't give daytraders much opportunity, but the primary focus energy stocks did, as the discount opening decline carried down to the -2.0 Volatility Band zones for stocks like XLE, RIG and DO, to name a few. The highest probability trade is when the RST strategy has symmetry with a volatility band and some Fib retracement or extension symmetry. The implied volatility in this sector is excellent, so therefore are the daily trading opportunities. The 1st Hour strategies continue to be a gold mine because of the artificial games played with the pre-market futures and Globex. There was no follow-through selling in the $US Dollar yesterday, as it closed +0.5% to 78.29, which sent gold down, and the $HUI was -3.5%. Crude oil also declined, but the highest probability is a lower $US Dollar, which will put pressure on both equity and bond markets, not to mention the "donkeys" with the tax and protectionist pencils ready to go.

Check out Kevin's strategies and more in the 1st Hour Reversals Module, Sequence Trading Module, Trading With The Generals 2004 and the 1-2-3 Trading Module.

Have a good trading day,
Kevin Haggerty