The Stock Market Casino is Open for Business

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 hit an intraday high on Tuesday of 1274.17, after a vertical move starting on the 2:25PM bar, and closed at 1273.68 after bouncing off the previous 1240.72 low on Monday. The 1274 number is the 360-degree angle measured from 1576, and was the key symmetry on the initial $SPX decline to 1270.05 on 1/23/08 preceding the rally to 1396 on 2/1/08. Yesterday, the $SPX bracketed that 1274 level with a 1277.36-1269.60 range until the initial short strategy opportunity on the down to the 1244.69 close, from 1266.44, started on the 2:15PM bar, which was a mirror image of the vertical advance the previous day starting on the 2:20PM bar.

The bizarre trading action in the financials the past two days was the catalyst for the mirror afternoon moves in both directions, as the big hedge funds try to game the almost daily contradicting financial news. The more Bernanke and Paulson open their mouths, the more volatility there is in the markets. The $BKX and $XBD were +7.6, and +5.4 on Tues, and -5.7, and -6.2 yesterday. The “no uptick” short rule, coupled with the electronic execution is what has increased the volatility on these “air pockets” and that has been a negative for investors, but a positive for daytraders.

NYSE volume was 1.49 billion shares yesterday, with the Volume ratio 19, and breadth -1032. After the reversal round trip from the 1240.72 low on Monday, the $SPX is still extended below the -2.0 STDV level on that 6-month STDV Channel chart from the previous commentary, so the same game starts again today from the 1244.69 close. The $SPX futures at 8:00AM ET are +7.0 points The BKX and XBD were the obvious downside leaders yesterday, and were followed by the SMH (-4.0), and the energy sector, with the XLE -2.0 and OIH -1.7, which reversed from gap up openings yesterday. Both of them are very O/S, and have declined 5 straight days with the OIH -11.1, and XLE -10.4, as crude oil has declined to an initial 135 support level. The trading service focus list Coal and Agricultural Chemical stocks all had positive divergence moves yesterday, led by ANR +4.6, MOS +4.5, AGU +2.9, and TRA +2.9. The $US Dollar index ($DXY) finished red at 72.56
(-0.6).

The downside $SPX levels to key on are outlined in the previous commentary, and I still expect a sharp rally before another decline to the expected bear market bottom zone between 1172, which is the .50RT to 769 from 1576, and the .618RT at 1077.

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