Derivative Meltdown Controls Market

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The energy, gold, and commodity sectors provided the leadership once again as the $SPX rallied in the last two hours to finish +0.5% to 1332.74. The summary table of focus list stocks from yesterday is included below. The $SPX made a 1307.39 low on Tues taking out the bear market low close of 1310.50 (1/22/08), but there was another one of those late afternoon "mystery moves" and the $SPX rallied to a 1326.75 close. The $SPX had made a +2.0 Standard Deviation move from the 1307.39 low to above 1344.18 yesterday, so that set up a defined strategy short opportunity which declined to 1320.22, before reversing into the 1331.74 close. There was both price and time symmetry for the short strategy entry, and the reversal of the 1320.22 low was from the .618 retracement zone to the 1307.39 low.

NYSE volume was 1.61 bill shares yesterday with the volume ratio 62, and breadth +607. The 4 day MA`s of the volume ratio and breadth reached the short term oversold condition on Monday at 32 and -1016, followed by 24 and -1219 on Tuesday so any bounce is no surprise to our daytraders. After yesterday's action they are still O/S at 33 and -766. Under normal conditions, we would expect an oversold rally, but the derivative meltdown and credit crisis news is heavy, and it will remain the anchor on this market until there is some overt change, and that is certainly not happening right now.

The energy and commodity related stocks are extremely extended, but for daytraders the intraday volatility is excellent, so they continue to be the primary trading focus along with the major indexes and ETF`s. The financials remain under pressure, as you would expect with the $BKX down 5 straight days and -10.9%, while the $XBD is -11.3% Crude oil settled on the NYMEX yesterday at 104.52, and then immediately traded up to 104.95 and is trading above 105 this morning. The commodity sectors alone can't hold this market up much longer, so until there is some other sector upside participation, the $SPX 1270 low is a sitting duck for the next significant derivative meltdown news.

The $SPX futures are -8.0 points as I complete this commentary at 8:00AM ET, and there are some economic reports today that have become "nonsense numbers" like jobs claims and retail sales, so daytraders will get volatility opportunity. These numbers going forward will be even more massaged than they normally are because of the Presidential election. However, the primary catalyst on this market both ways is the credit crisis and derivative meltdown, and right now the bear market trend remains down. The next key time zones are posted in today's trading service commentary, and are available to free trial subscribers.

The next commentary is 3/11/08

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Have a good trading day,
Kevin Haggerty