This price level is a magnet for the SPX

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.

The SPX finished the week at 1234.72, +1.1%, +0.3% on Friday and +5.7% for the 21-day old rally off the 1168 10/13/05 low. NYSE volume dropped to 1.29 billion shares on Friday with breadth only +413 and the 4-day moving average of just +151 as the SPX advanced from Tuesday's 1216.08 low to Friday's 1234.72 close. The volume ratio was 67 Friday with the 4 MA neutral at 56.

The leadership for the rally has been the semiconductors (SMH | Quote | Chart | News | PowerRating), +12.1%, Transportation ($TRAN), +12.1%, Financials (XLF | Quote | Chart | News | PowerRating), +11.4%, and basic materials (XLB | Quote | Chart | News | PowerRating), +10.4%. I have included the momentum part of my composite which covers four different time periods with the maximum at 50 days.

Unlike the SPX, Dow, and QQQQ the New York Composite ($NYA) hits its low on 10/20/05, with the SMH on 10/19/05 and the XLB also on 10/19/05. When the composite numbers get to >=40, it is not where you want to get long, or even when it is in the 35-40 range. Price may go higher as momentum turns down but it is a profit-taking opportunity. If you are trading it, there is no reversal unless it is confirmed by price, not just because momentum reverses. That means at least a close below the low of the high day to start with. Momentum sometimes reverses with price but most often price lags momentum and right now momentum has not shown any negative divergence yet, although breadth has shown a negative divergence relative to the current SPX advance and you can also see this in the lower composite number (19) for the New York Composite, which is the broad representation of the NYSE.

This week is option expiration, in addition to the SPX and Dow being out to their three-month, +2.0 standard deviation levels and the QQQQ almost to the +3.0 band, which is the mirror image of the 10/13 lows for all three indices. This is more than enough for daytraders to expect some volatility this week. Watch for a $VIX (11.63) reversal, now 12.1% below its 10-day moving average as an early read on a change in current price action/direction. Those of you familiar with my "820" intraday trend method key on the 15- and 60-minute time periods for any change in direction in the current short-term trend.

The SPX magnet at 1246 is a sitting duck and would squeeze some more fear out of the shorts, but a retracement is what would give the Generals a better platform for a stronger mark-up into year end. This mark-up would be a lucky opportunity for longer-term equity holders to protect themselves against this next bear cycle staring you in the face.

Have a good trading day,

Kevin Haggerty