5-Day Positive Seasonal Bias

The major indexes all declined Friday, with the SPX -0.3% to 1451.19, the $INDU -0.3% to 12647, and QQQQ -0.4% to 45.26. NYSE volume was 1.45 billion shares, and the internals neutral with the volume ratio 42 and breadth -114. The internals were not indicative of the percentage index declines. All of the major indexes led by mid-cap and small-cap made new multi-year highs last week, but the SPX finished -0.3% on the week, and the $INDU -0.9% to 12647. The QQQQ finished green on the week at +0.8%, due mostly to the semiconductors, as the SMH gapped up to the top of its 6 month trading range the last two days to finish the week at +3.1%. The leaders for the last 5 days were commodity sector stocks (DBC +4.9%), gold ($HUI +3.2%), semis (SMH +3.1%), energy (OIH +2.8%) and XLE (+1.1%). The downside leaders for the week were the homebuilders (XHB), REITs (IYR), drugs and health care (PPH, XLV), in addition to the banks ($BKX) and brokers ($XBD).

This week has a seasonal up-bias with the last 3 days of the month and the first 2 days of March. Also, the SPX and $INDU have pulled back 3 days to rising 20 dema zone, and this has preceded most of the previous reversals. Seasonal bias and pullback is positive, which offsets the short-term internals, which are still neutral with the 4 MA of the volume ratio 49 and breadth only -114. The $INDU 5-RSI is 35.15, with the SPX at 45.74. The internals have worked off a short-term overbought condition following the 1455.54 close on 2/16/07, when the 4 MA ratios were 66 and +810. A new cycle high of 1461.57 was made on Thursday, while the week closed at 1451.19. For the initial 8 weeks of 2007, the SPX has closed down for 5 of them, but there has been no real selling pressure, so prices continue to work higher in a smaller universe of stocks.

There won't be any selling pressure until the SPX/$INDU trend of higher highs then lows is broken. Only when buying the dips creates red ink for hedge funds and aggressive generals will the selling pressure pick up. Two early red-alert indicators are MER and NYX, and right now their daily chart patterns have turned short/intermediate-term negative. The $XBD closed at 250.61, and by taking out the 247.06 low, the short-term trend will also turn negative. The daytrading emphasis has been correctly focused on energy and other commodity sector stocks, and that remains the same until the game changes. The First Hour reversal strategies in the major indexes have continued to be major sources opportunity for daytraders, and with the current predominately electronic opening process in place, the inefficiencies will continue to fuel the First Hour "game" for traders.

Have a good trading day,
Kevin Haggerty

Check out Kevin's strategies and more in the 1st Hour Reversals Module, Sequence Trading Module, Trading With The Generals 2004 and the 1-2-3 Trading Module.