Energy and semi's remain the key focus this week

Kevin Haggerty is the former head of trading for Fidelity Capital Markets. His column is intended for more advanced traders. Kevin has trained thousands of traders over the past decade. If you would like to be trained by him, click here. or call 888-484-8220 ext. 1

Last week the SPX (SPX | Quote | Chart | News | PowerRating) hit an anticipated price zone with the 1294.90 Thursday high and it was in the key time zone of 01/11 - 01/13. So this week is the first reversal test of the 2006 opening rally. The SPX hit a 1282.78 intraday low Friday to close at 1287.61, +0.37% on the week and 0.1% on Friday. Oil has spiked up again above 65 since Friday with the current Iran noise and Nigerian terror report. These events have the futures red at 6:00 AM EST as I do this commentary. The S&Ps are -4.5 points, Dow -45 and Nasdaq -11. The major indices are extended and the initial downside minor support is 1276 - 1270 which includes the previous trading range high, 50-day EMA at 1274 and .50 retracement zone to the 1246.59 low at 1270.75 (see chart).

The energy sector, led by the driller and equipment service groups has been strong the first two weeks of 2006 with the OIH (OIH | Quote | Chart | News | PowerRating) +10.3% close-to-close. The Semis are the other leading sector with the SMH (SMH | Quote | Chart | News | PowerRating) +8.6% since the December 30, 2005 year-end close and we have the Intel (INTC | Quote | Chart | News | PowerRating) earnings today which are being hyped up in the media. There are also some downgrades such as AMAT (AMAT | Quote | Chart | News | PowerRating) so the ingredients are in place for an active Semiconductor Group this week and that's where the focus will be along with the energy stocks.

Regardless of what the media has to say and the "funny money" Bureau of Labor statistics puts out as numbers, much of the economy has slowed down and the housing market is soft and getting softer. You just have to look at the 1,2,3 lower tops forming in these stocks to see that. Heath care programs are being reduced as companies cut back on their subsidies, and if higher gas prices are sustained due to the current middle east situation, it all makes for a unhappy consumer that will put zippers on their wallets and that is not a good thing for the equity market. Iran starts the Oil-Eurodollar combination in March so it remains to be seen how the U.S. Dollar will be affected by this. Gold hits its highest price since 1981 last week and Newmont Mining (NEM | Quote | Chart | News | PowerRating) is close to doing the same. After significant numbers are taken out, there is a high probability of a reversal/retracement.

Have a good trading day,
Kevin