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The SPX has advanced 8 of 9 days to new cycle highs at 1555.10 and closed Friday at 1552.50 (+0.3%) and +1.5% on the week. There was a 49 point (+3.3%) gain from the 1506.10 Wednesday low to the 1551.10 Friday high. The SPX and $INDU (+2.2%) are extended to their +2.0 4-week Standard Deviation zone, just as they were on 6/15/07 when I posted the SPX chart with the 1538.71 high on 6/15 prior to the decline to 1484.18. Looking at it on an 8-week basis, they are closer to the +3.0 zone, so either way, there is no position edge here, with the previous range resistance at 1540-1535 now support. Thursday's rally on no real significant news was coincidental with President Bush's speech with the Iraq war report, in addition to some administrative officials hitting the TV ways and talking up the economy. This has happened since on a consistent basis ever since a runup to the midterm elections started from the 1219.29 SPX 6/06 low. The Federal Reserve is obviously more concerned about keeping the current economy and stock market moving than inflation, or else they wouldn't be growing the M3 money supply at such a record pace (ShadowStats.com). The economy is the only key card going the Republicans' way right now, so my guess is they are pushing Bernanke to keep the money supply going, and just jawbone inflation, rather than put any breaks on it.

The SPX/$INDU have made a one-way spike up since their Wednesday lows, with no tradable contra move or travel range to work with. However, that was not the case with the primary focus sectors of energy and technology. For example, on Friday there was a divergence in the XLE which traded up strong into the opening versus the OIH, which had a gap down opening to the -1.0 Volatility Band and 816 ema setting up the Trap Door long entry. The same was true for other energy stocks like WFT and DO. The energy sector has a combination of a high implied volatility level and is also a leading ATL (Above the Line) sector, so that is where traders have the biggest edge and will get the most consistent trading opportunities. It stands to reason.

NYSE volume of 1.34 billion shares on Friday was at the lows of the week. The SPX and $INDU were each +0.3% to new cycle highs, while the breadth on Friday was just +198 and volume ratio 61. In fact, despite the new cycle highs, the 4 MA of the volume ratio was neutral at 56 and breadth just +68. The universe of stocks pushing the SPX higher is much smaller, and my guess is that the PPT (Plunge Protection Team) will continue to be active accelerating buy programs on any significant weakness or perceived or actual negative developments in the administration. I don't think they can delay the inevitable decline through the 2008 election, but what do I know, I didn't think this bull cycle would be the longest time between bull market tops in over 50 years.

This Friday is option expiration, and also has some Fibonacci time symmetry from the 3/14/07 1364 low. There were 55 trading days from the 3/14/07 1364 low to the 6/1/07 1540.56 top. There were 34 days from the 1540.56 top to July 20 this week. By the same token, July 20 is also 89 days from the 3/14/07 1364 low. The next key price zone, similar to the 1540-1535 zone, which was anticipated well in advance of the recent 10-week trading range, with 1540 being the upper boundary, is outlined in today's Trading Service commentary, and available to free trial subscribers. There is no long edge starting the week, so trade accordingly.

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.