Hard or soft landing

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 SPX finished the best week in 20 months at 1278.55, +2.7%. The index closed the previous Friday at 1240.29 vs. 2005 close of 1248.49. Last week's markup to 1278.55 took the SPX from a small negative to a +2.4% YTD 2006. Today is the last day of the month so the index will most likely hold its gains and break out of the 1280.38 - 1219.29 range the first few days of August. The key price levels if that occurs are 1285.67, 1290, 1295 and 1303.71. The Generals got a big assist Friday from a batch of negative economic news which accelerated the "pause" hype once again, but not for the normal 200-point $INDU gain. The SPX was +1.2% on Friday, with the $INDU +1.1% (+120 points) with the most oversold QQQQ +2.1% and $COMPX +1.9%. NYSE volume declined to 1.68 billion shares vs.the 1.8 billion shares Thursday on a -0.4% day. The VR was 80 and breadth +2007. Over 35% of NYSE stocks are interest rate sensitive, so that hyped the breadth number as the TLT finished at +0.6%. The Fed has turned into a bit of a joke as they vacillate with each economic report. I can understand the TV empty suits and brokerage firm economists that are just shills to rationalize and keep investors in the market, but the seeds for a recession or slowdown have been obvious for quite some time, as I have mentioned in this commentary on previous occasions. Most people only want to hear what they want to hear, while few will act on what they see.

The short story is that the leading economic indicators have been declining for over 6 months and there is a current yield curve inversion. When this happens in concert, the odds are almost 80% that a recession will follow and 95% there will be a slowdown. The Fed missed in 1990 and 2000, and from listening to the double talk so far it seems they missed or are very late on this this one. A pause is not going to stop what is already in motion and will inevitably play out. Cumulative impact of increased rates, rising energy costs, much lower real job growth than what the bag man at the Bureau of Labor Statistics reports, in addition to the extremely overleveraged consumer who is getting hit on all sides will make us pay the price. The question is not if there will be a slowdown, it is simply will it or won't it be a soft landing. The Fed's track record is not good in that regard. The Generals made a slowdown bet quite some time ago based on the out-performance of the defensive sectors previously outlined in this commentary.

The market is in month 46 of the four-year cycle and the average time between four year-cycle lows fro the past 50-60 years has averaged 48 months, with 11 of the 22 cycles 49-53 months. It was 6.2 years to the 5/8/06 1327 high from the 3/24/00 bull cycle top which is the second longest to the 6.7 years to the 1987 peak. Time is obviously not on the market's side and the SPX 1219.29 low (-8.1%) is not the four-year cycle low. There are over 7000 hedge funds out there competing for performance to raise more funds; in a nervous market like this they must have fast trigger fingers, and long term is after lunch in order to keep their heads above water. It sure as hell doesn't mean buy and hold. The market moves will be sharp both ways but of much shorter duration.

Have a good trading day,

Kevin Haggerty