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In the previous commentary (Time Symmetry and Year-End Markup), I said that December 5, 6 and 7th have significant time symmetry that could affect the market in either direction, because the SPX was no longer in a key price zone after rallying from the last time period and 1406.10 low. The SPX is +7.2% (low to high) in 8 days from the 11/26 1406.10 low and last key time period. It has now reversed into the extended short-term +2.0 Standard Deviation zone, with the +3.0 Standard Deviation zone at 1525-1530, so the probability is for a downside reversal from this extended zone before a markup into year end. The next key time date is 12/14 (+/- 2 days). If there is a pullback into that period, it will set up a good short-term rally.
The SPX was churning yesterday in that 1490-1493 resistance zone I outlined in the previous commentary, until the President's announcement on the new interim subprime band-aid, which is a subprime interest rate freeze, for what looks to be a minimal amount of subprime borrowers, with many restrictions. The SPX made a vertical move on the 2:05 PM bar from a 1490.68 at a 1507.34 close (PPT?). The homebuilders got squeezed, with KBH +16.1%, LEN +15.3%, PHM +12.7% and CTX +12.7%. The market unanimously expects a rate cut next week, and discounted it with the current advance, but it can still act as a catalyst for a markup by the Generals into year end. For traders, a quick downside (air pocket) will set up a short-term long index proxy position trade into year end.
The focus on the General's big cap leading percentage gainers for 2007 has been spot on for this rally, and that will continue into year end. Energy continues to be the best daytrading sector, and the trend up day yesterday made many traders happy in energy stocks, because most of them opened in-line and provided First Hour strategy entries, such as Opening Reversals (SLB), Dynamite Triangles (HES) and Flip Tops, to name a few. The economic numbers will continue to be massaged by the US government, and the Fed will continue to jawbone the $US Dollar, as it still grows the money supply (M3) at a record pace, and lowers interest rates because they know that the real world economy is much more negative than the reported economic world. A year-end rally is an opportunity to significantly reduce equity exposure, and is a short opportunity for traders.
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.
Have a good trading day,
Kevin Haggerty
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