The Stock Market Is Nothing More Than A Casino These Days

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 or call 888-484-8220 ext. 1.

Crude oil (WTIC) made a big move on Thursday to a $122.04 high, and the USO went +4.5%, then reversed that move on Friday as crude made a 121.86 high, and settled at 114.59, which reversed the 8 bar range B/O (117.37-111.50) on Thursday. The U.S. dollar was in sync with both moves, as the DXY was -1.1 on Thursday, and +1.0 on Friday. Gold and energy stocks were also in sync with both moves in the U.S. dollar and crude oil.

Fast forward to yesterday, and crude oil and the U.S. dollar were relatively quiet, but the on going negative "derivative meltdown" news took over, and this resulted in a "fear" day with the SPX finishing at 1266.84 (-2.0), with the QQQQ, and INDU -2.1. Also, Morgan Stanley (MS | Quote | Chart | News | PowerRating) threw in the towel and lowered its year end SPX projection to 1300 from 1400, which is typical for the "after the fact" analysis from the brokerage firms and empty suits on CNBC.

The NYSE volume average last week of 973mm shs was the lowest this year, and yesterday's 865mm shs is the lowest NYSE volume this year. The Volume Ratio was just 11, and breadth -1718, so it was obviously all one sided as the liquidity remains very thin, and because of the light August volume, it doesn't take much to accelerate direction with all the hype on any piece of news, regardless of how meaningless it might be. The financials led the downside again with the BKX -3.4 and XBD -3.0. The Lehman Brothers (LEH | Quote | Chart | News | PowerRating) saga continues, and it is obvious they are soon to disappear as the entity it is now, whether it is a deal or otherwise. All of the other sectors finished red yesterday, and only the TLT +1.0, USO +0.6, and DXY +0.6 finished green.

The credit spreads in the bond market continues to widen in anticipation of rising defaults, and as lenders try to shore up their balance sheets. Mortgage rates are rising, not falling, despite a continued flight to safety in treasury securities, and this will further suppress housing demand, and prolong the housing asset deflation, which of course means continuing sub prime write off problems, and the need for financial institutions to raise more capital. In my +35 years in this business I have never seen such a fire sale in U.S. assets that we are experiencing now, and witnessing our financial institutions whore themselves to foreign capital.

While the Hedge funds flip flop every other day chasing the news and picking bottoms/tops, and getting their clocks cleaned, the day trader continues to prosper by trading the extended reactions, and not chasing the news, or the hype predictions you hear every day on "that" channel. This week is month end, and even if the 1261.16 last swing point low gets taken out today and maybe the 1/23/08 1257 low, the odds favor a bounce into Friday. Any continuation sharp move down this morning will set up a good contra move, so put your trap toor, and volatility band hats on, and be ready to play in the "Casino", which is about all it is these days.

I have not seen anything yet that alters my opinion that this bear market is not over, and that the SPX will trade below 1200.44. However, that also doesn't prevent us from continuing to short-term trade the extended reactions in both directions, as we just did with the energy sector on the reversal of crude oil, and the U.S. dollar, all of which were a their extended 2.0 STDV levels, which I included in previous commentaries.

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Have a good trading day!

Kevin Haggerty