The $NYA Confirms Narrow Bear Market Rally

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.

In the previous commentary (8/19/08), I said that a short term trading reversal was anticipated in the energy sector, gold, and the $US Dollar, because they were all extremely extended to their 2.0 STDV level, and then some. The XLE, and GLD, were extended to their -2.0 levels, and the DXY to its +2.0 STDV level. This kind of inter market reversal will obviously put pressure on the SPX, which it has, as the SPX hit 1261.16 yesterday, down from 1300.22 on Monday. Members of the trading service have profited the last two days from this reversal, as crude oil has advanced, while the OIH is +6.8% in two days, and the XLE +6.3.

NYSE volume only averaged 1.15 billion shares last week, and for the first 3 days this week it is 1.02 billion shares, as the August doldrums have taken hold. The BKX was -7.3 the first 2 days, and made a +2.3 reflex yesterday, while the XBD is -5.4 so far this week. Freddie Mac (FRE | Quote | Chart | News | PowerRating) and Fannie Mae (FNM | Quote | Chart | News | PowerRating) hit new bear market lows as they imploded the last 3 days. Lehman Brothers (LEH | Quote | Chart | News | PowerRating), Merrill Lynch (MER | Quote | Chart | News | PowerRating), and Goldman Sachs (GS | Quote | Chart | News | PowerRating) are pushing their July lows as the derivative meltdown and credit crisis news just doesn’t get much better, and neither does the housing deflation.

The Generals have been buying consumer staples, bio-techs, healthcare, drugs, and selected technology stocks during this rally off the July lows, and they have backed off the last few days as some money has been put to work in the extremely O\S energy sector, which has more to go before it even reaches the .382RT level to its bull cycle highs (XLE, OIH).

As the volume has decreased, so has the liquidity, and the trading in individual stocks can be very erratic, so it is extremely important that you continue to confine your day trading and short term swing trading to only the highest probability situations, like we just had in the energy sector.

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Have a good trading day!