Continue to sell rallies; major indices will make new lows

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. 

The last commentary (8/2) I mentioned the time cluster from 8/2 - 8/8 and then 8/14 -8/16 and to expect volatile price action. I said if the SPX breaks the upper trading range boundary (1280.38) to expect a reversal from the 1285.67, 1290 or 1295 levels. On Friday, there was another hyped 'pause' move that sent the SPX (accelerated by the futures) to 1292.92 (+1.0%) on the 9:45 a.m. bar. That was the intraday high and the SPX then declined -1.5% to 1273.82 before closing at 1279.43. Once again, the lambs got fleeced on another 'nonsense opening.' The Dow reversed -157 points (-1.4%). The QQQQ was +1.5% to that 9:45 a.m. bar, then -2.7% while the SMH was +2.6% on the opening, then -3.3%. It was a key price and time zone reversal--in addition to confluence--with the one-day volatility bands, so it was a no-brainer for daytraders familiar with the various strategies and primary tools used to identify key zones of action. There will be increasing random price movement and erratic trading, but the SPX 1219.29 low will get taken out on the way to a 4-year cycle low. There have been some significant declines by the other major indices so far from their bull cycle highs to their recent lows. Those declines and highs are: QQQQ, -17.9% (1/11/06); $COMP, -15.3% (4/20/06); IWM, -15% (5/5/06); $TRAN, -14.9% (5/10/06); SMH, -28.5% (1/12/06). So what do you think the highest probability for the SPX/INDU is being that they have only declined -8.1% and -8.4% high to low?

My view has not changed, and any rallies into the 3% resistance range from 1290 - 1330 should be and have been sold. That is exactly what I said January of this year. The polyanna media/brokerage firm approach is a very soft landing and a fast upside reversal for the major indices. Anything is possible, but not highly probable based on price, time, and the current world situation. The Fed is now expected to 'pause,' and if they do, that will put more pressure on the $US and the Fed can't defend it with continued rising rates because of an already slowing economy. On top of that, commodity prices will continue to rise and the threat of a significant Middle East shock wave is on the table. Crude oil is now trading above $75 with the $100 magnet a real possibility on any new negative surprises from the Middle East.

The old saying, "stock prices must be taken down to go up" fits this situation, but they have not been down enough as of this date.

Have a good trading day,

Kevin Haggerty