Inter Market Reversal Setting Up

From 1990 to 1997, Kevin Haggerty served as Senior Vice President for Equity Trading at Fidelity Capital Markets, Boston, a division of Fidelity Investments. He was responsible for all U.S. institutional Listed, OTC and Option trading in addition to all major Exchange Floor Executions. For a free trial to Kevin's Daily Trading Report, please click here.

The August doldrums are in full swing as NYSE volume averaged only 1.15 billion shares last week, and yesterday's volume of 985 million shares was the lowest since the 7/3/08 932 million shares, when the NYSE closed at 1:00PM for the holiday. However, the intraday volatility has been decent as the "herd" all reacts to the same news stories, and the empty suits on CNBC have a new market and economic consensus every week, as all they do is fit the story to the price action after the fact.

The derivative meltdown news was front and center again yesterday with the meltdown of Fannie Mae (FNM | Quote | Chart | News | PowerRating) (-25%) and Freddie Mac (FRE | Quote | Chart | News | PowerRating) (-22.3%) The same "herd" that took FNM from 6.63 on 7/11/08 to 18.36 (+177%) in 5 days, took it to a new bear market low at 6.08 yesterday. The FRE had run from 3.89 to 11.60, and it imploded yesterday to 4.36, so there was a lot of pain in this musical chair game of bottom fishing. The brokers also sold off with Lehman Brothers (LEH | Quote | Chart | News | PowerRating) -7.1% to 15.03, and Merrill Lynch (MER | Quote | Chart | News | PowerRating) -5.9 to 24.74.

Crude oil is still holding the 111.50 low from last Friday, with the 200DEMA at 111.94. The XLE is extremely extended to the -2.0 STDV level on the 1-year STDV Channel chart, while the OIH closed at 175.68, with the -2.0 STDV level at about 170 Just below that, the obvious support levels are 110 and 100 The $US Dollar is ST-O/B, while Gold is also very extended, with the GLD (78.80) extended beyond the -2.0 STDV level at 81, and almost to the -3.0 STDV level, which is about 76. They are all set up for a short term reversal including the $US Dollar which hit the +2.0 STDV level on the 1-year STDV Channel chart yesterday (77.13) with the +3.0 STV level at 79.50.

The "Derivative Meltdown", credit crisis, housing deflation, and probable insolvency of some financial institutions, does not bode well for the fast recovery that the media is hyping, as Europe slows. This is the first consumer led recession in quite some time, and they are about 70% of the GDP, so unless something "eases their pain" it will be slow going, and that will put the brakes on any new bull cycle starting near term.

The next commentary will Thursday 8/21/08

Have a good trading day!

Click here to find full details on Kevin's courses including Trading with the Generals with over 20 hours of professional market strategies. And for a free trial to Kevin’s daily trading service, click here.