Generals pushing for year-end mark-up

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 traded in a 4.3 point range between 1255.73 - 1251.40 until the FOMC release and then the SPX advanced +7.9 points to a 1261.90 high and and 1261.23 close, +0.5%, and +6.4 points on the day. NYSE volume was 1.68 billion shares, volume ratio at 65 and breadth soft at +598. The Generals seem to be doing a good job of rolling out of undesireable positions into more of their winners for the year-end push.  That is one reason there is the significant divergence in breadth recently, but certainly not the primary one late in the bull cycle.

After a 2004 year-end mark-up to save the year and a very weak 2005 until the current advance from the 1168 SPX 10/13 low, the hedge funds are also pushing hard for a mark-up into year-end along with the Generals. They will steam-roll any existing shorts if they can. Price continues to rise with weak internals like breadth and new 52-lows exceeding highs for the past two weeks ending 11/18, in addition to just a small advantage in advancing vs. declining volume. The base for this continued advance has weakened considerably and is in need of a pullback.

Leading sectors yesterday were the OIH, +2.2%, and SMH  +1.9% Crude oil ($WTIC) gapped and closed above its 57.88 200-day EMA to 58.84. However, the OIH broke out to a new bull-market high yesterday, closing at 126.70. Light crude has declined since the 08/30 close of 70.85, while the OIH, after a retracement to 105.45 on 10/19/05, has advanced +20% to yesterday's 126.70 close . Both "Generals' Pullbacks" (05/16/05 and 10/19/05) have been excellent trades (see seminar manual / Sequence Trading module).

There will be more random price movement today and Friday as many trading desks and NYSE floor operations are half-staffed. That usually means the rookies are on the books with instructions not to get into any position trouble so prices can get easily pushed in either direction by the infamous "they." Upstairs daytraders are just toys in this game and should keep their powder dry unless there is a high-probability setup.

Implied volatility is down at the low end with the SPX AIV (average implied volatility) at 9.3% yesterday. Because of the 28-day +8% SPX advance (low to high) since 10/13/05, long delta synthetic straddles were put on yesterday because it is a very good inflection point and an overbought marked up market on weak internals. There is symmetry at 1253 - 1254, (.618 retracement, 1553), 1265 - 1273, then 1305 -1307 (measured Wave 5 price objective). All of the specific anticipated time and price zones will be e-mailed Inner Circle members today.

The next commentary will be Monday.

Have a Happy Thanksgiving and have a great weekend.

Kevin Haggerty