I Like This Bet

Last week ended at new rally highs for all of the major indices as they extend the trading tree even more into this significant retracement zone. The SPX ($SPX.X | Quote | Chart | News | PowerRating) closed at 1139.83, +1.6% on the week, while the Dow ($INDU | Quote | Chart | News | PowerRating) was +1.3% at 10,601. Technology led the week, with the Nasdaq ($COMPQ | Quote | Chart | News | PowerRating) +2.6% and the (QQQ | Quote | Chart | News | PowerRating)s 2.7%, closing at 38.16. It was option expiration, so the big NYSE volume days were Thursday at 1.67 billion and Friday at 1.72 billion.

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The brokers led the major sectors at +5.9% on the week, followed by the (BBH | Quote | Chart | News | PowerRating) +2.3%. Both the (SMH | Quote | Chart | News | PowerRating), +1.2%, and the BKX, +1.1%, lagged the SPX, while the RTH was in line at +1.7% for the week. The (TLT | Quote | Chart | News | PowerRating)s finished flat, but the XAU had an air pocket week at -11.3%.

The price persistency for the SPX has been extraordinary having advanced over 34% from the 848 March 31 low without even a 5.0% or 6.0% decline close-to-close. In fact, from the 12/10 low close of 1059, the SPX has advanced +7.6% to Friday's 1139.83 close without even a 1.0% close-to-close decline on the daily chart. However, the travel range on the 30-minute chart has seven such 1.0% moves on a close-to-close basis, so there has been opportunity both ways for intraday traders, but no daily chart retracement setups for position traders.

Like the days of old, (JNPR | Quote | Chart | News | PowerRating) had "better than expected" results on Friday and sent the stock up +31% and carried other SPX stocks, like (AMCC | Quote | Chart | News | PowerRating), +13.6%, (CIEN | Quote | Chart | News | PowerRating), +18.8%, and (JDSU | Quote | Chart | News | PowerRating), +15.7%, to their double-digit gains. It was all communication equipment and networkers on Friday.

The Dollar had a reflex last week, and this week we will see if it was mostly short-covering or whether it will retrace some percentage to the last swing point high around 100 (US Dollar Index). If so, the multinationals remain on the focus list as activity will certainly accelerate in those stocks.

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For Active Traders

Trading in the major indices on Friday was trend up after the first hour, and the SPX total range Friday was just 7.8 points, but in one direction, so you either got on board early, or you didn't. Nothing done here. There are quite a few numbers in the 1150 - 1160 zone, so it's a test for the SPX, and no interest here for initiating any new index long positions, as there is no edge. This corner is very happy with the long synthetic straddles. The AIV for the SPX was 12.76 on Friday, so it's straddle time for this corner, and then trade the reactions. I am banking on the SPX either reversing in this 1150 -1160 zone, maybe a touch above, or else trading through the zone to the next level at about 1253. It is a win-win in either of these outcomes and a defined loss if price goes sideways for the next few months and implied volatility declines even more. I like the bet.

Regardless of the price persistence in the major indices, there continues to be some rolling retracements in the various sectors, with the best being the SMHs declining to the sequence zone around 38.50 in mid-December before the recent 19% swing to a 45.78 high, closing Friday at 45.32.

For Today

Coming into today, some of the energy stocks, like the (OIH | Quote | Chart | News | PowerRating)s, (BHI | Quote | Chart | News | PowerRating), (SII | Quote | Chart | News | PowerRating), (RIG | Quote | Chart | News | PowerRating), (NE | Quote | Chart | News | PowerRating), (NBR | Quote | Chart | News | PowerRating), (DO | Quote | Chart | News | PowerRating), (BJS | Quote | Chart | News | PowerRating), (APA | Quote | Chart | News | PowerRating) and (XOM | Quote | Chart | News | PowerRating) have pulled back to their 20-day EMAs, so they now rotate back to the focus list in case the Generals or hedge funds show up.

The balance of the XLE position is still intact, as it hasn't closed below 27.50 yet after hitting the 28.33 high last week. The XLE is from the 25 breakout of the symmetrical triangle in early December.

Stocks that could regain momentum after coming out of the top of their ranges are (MERQ | Quote | Chart | News | PowerRating), (PHTN | Quote | Chart | News | PowerRating) and (CAT | Quote | Chart | News | PowerRating). Also, the XLBs traded down to 25.93 last week, so that stop has been moved down below breakeven and in the money. (INTC | Quote | Chart | News | PowerRating) closed Friday at 32.89, just above its 20-day EMA of 32.78, and a 32 60-day intraday low on both Thursday and Friday. The 50-day EMA is lower at 32.13. INTC is always a key focus because it is the primary weighting of the SMHs, in addition to a primary component of the SPX and Dow.

Based on the early futures at 7:45 a.m. ET, the first index contra trade might come from higher levels. The S&Ps are +2.6, the Dow +28 and Nasdaq futures +8.

Have a good trading day,

Kevin Haggerty