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The SPX declined -1.8% on Thursday, accelerated by the bond market selloff, where the TLT was also -1.8% on over 6 times its average volume. The TLT finished the week at -2.2%, while the SPX was -1.9%. The TLT is -6.5% in 5 straight down weeks, and is now the primary focus for the equity market. This Friday is not only triple-witch option expiration, but it is also calendar day 1708 from the 10/10/02 769 SPX bear market low, which makes it the 2nd longest period between 4-year cycle lows since the 6/13/49-9/14/53 cycle. This bull market is already the longest period between bull market tops over the same period. The longest period between 4-year cycle lows is 8/9/82-10/20/87 (1898 days). The key point is that continued rising rates with a slowing economy will bring this extended cycle to a close, and let's hope "they" don't sell the U.S. dollar off, which would certainly extend the severity of any down cycle.

The SPX was -3.2% in 3 straight down days before Friday's +1.1% rebound from the 50-day ema zone. It was extremely short-term oversold into Friday, with the 4 MA of the volume ratio just 24 and breadth -1515. The bounce was expected if the bond market had quieted down, and it did on Friday morning after making a new low. With the SPX down to 1487.41 from the Monday 1540.53 high, it was a good spot for the Generals to get started propping up their 6-month report card with 15 trading days left in the month and/or the PPT to get involved by buying SPX futures to calm and manipulate the market higher. The TLT is extremely short-term oversold, with the next key price levels at 82.93, 81.50-81.40, 80, 78.67.

The SPX did little or nothing on Friday morning, as it was trading at 1495.71, versus the previous 1490.72 close on the 1:35 PM bar when it broke out to new intraday highs and advanced 12 points into the 1507.67 close. That was 70% of the total 16.95 points gained on the day by the SPX. The TLT rallied from the 83.60 Slim Jim high to 84 after breaking out on the 2 PM bar. NYSE volume was not heavy on Friday at 1.51 billion shares, but the volume ratio was 87, and breadth was +1316. In addition to the Generals' participation, and whatever the PPT did, had to also force some short covering. The best RST setup in the major index proxies Friday was the QQQQ, as it was led by the semis with the gap up opening on the SMH, due to the NSM news, which if you read it, will give you quite a laugh (Yahoo Finance). Nevertheless, NSM was +14.7% on the day, and this kept the SMH trend up all day. There were also RST buy opportunities in the OIH and some component stocks, with entries on the 9:45 AM bar. However, the sideways trading action lasted until 1:35 PM, and trades initiated on the 9:45 AM bar were mostly exited by then, so you either played the afternoon breakout or not, but it preceded the TLT breakout, so it was a "not" from this corner. If the bond market stabilizes, expect the major indices to be higher this week, and also expect some volatility due to the option expiration. There is usually one good percentage move during an expiration week, especially triple witch. However, make no mistake. If rates continue to rise, the bond market controls the equity market, and there will be equity sellers into any oversold rallies.

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.