Weakness to be followed by markup into Q3 end

Kevin Haggerty is a full-time professional trader who was head of trading for Fidelity Capital Markets for seven years. Would you like Kevin to alert you of opportunities in stocks, the SPYs, QQQQs (and more) for the next day's trading? Click here for a free one-week trial to Kevin Haggerty's Professional Trading Service or call 888-484-8220 ext. 1. 

NYSE volume expanded to 1.67 billion shares as the SPX declined -0.5% to 1318.05. The QQQQ was -0.6%, with both the $INDU and $COMPX -0.7%. The volume ratio was 37 and breadth -556. The breadth number is skewed to the low side because more than 35% of NYSE listed stocks are interest-rate sensitive, and most of them closed green as the TLT was +0.9%. The commodity sector stocks were strong, led by energy, with the OIH +2.0%, XLE, +1.3%, and XAU +1.1%. The semis led the downside, with the SMH -2.6%, followed by the RTH, -2.3%, $TRAN, -1.5%, and $CYC, -1.4%.  Daytraders should have caught the SPX triple top: 1328.53, 1328, 1328.18 (5-minute chart), which was a basic 1,2,3 Close short strategy entry. The OIH, XLE and many of their component stocks had no carry-through selling from Wednesday's big decline where the OIH was -3.6%. They opened up small and formed contracted volatility patterns, which were Slims Jims and First Consolidation B/O, for those of you who know the strategies. Other than the OIH and XLE, many of you traded the individual component stocks such as [NOV|NOV, [SLB|SLB], (MRO | Quote | Chart | News | PowerRating), (ECA | Quote | Chart | News | PowerRating), all of which had contracted volatility patterns There was also (NEM | Quote | Chart | News | PowerRating) (gold) on a gap pullback.

The SPX took out its previous bull cycle high of 1326.70 on an intraday basis but has failed to close above it. The SPY has yet to take out the 132.80 cycle high, hitting 132.77 on Wednesday and closing at 131.67 yesterday. If it doesn't happen today because of some follow-through weakness for a couple of days, then it will next week into month/quarter end. There is a key time period next week: 9/26 - 9/27, so any weakness into that will be followed by a mark-up into the month/quarter end. The media and many so-called market strategists keep emphasizing October 2006 as the 4-year cycle low timing. I guess because it is 48 months from 10/98, they assume this will be the same.  The feeling now prevails that if it doesn't happen in October, there won't be one. I strongly suggest you don't bet the ranch on that logic. The fact is, that of the past fourteen 4-year cycles, the average cycle low is 49.25 months. Right now, September is the 47th month. Of those fourteen 4-year cycle lows, five were between 51.1 - 54.3 months, and that is the reason I have said many times that the higher probability for a 4-year cycle low is October '06 - March '07.

Have a good trading day,

Kevin Haggerty