The Current SPX Key Price Zone in Play

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 SPX went positive on the year on Monday as it gained +3.4 to close at the 907.24 new high, versus the 903.25 12/31/08 close. It backed off yesterday to finish at 903.80 (-0.4), on NYSE volume of 1.53 billion shs, with the Volume Ratio neutral at 53, and breadth -382. The decline from the 1/6/09 944 high to the 667 3/6/09 low (-29.3) was 41 days, and yesterday was day 41 in this rally (+36.1) to the 907.70 intraday high. The 4 day MA's of the VR and breadth after the Monday 907.24 close were extremely ST-O/B at 74 and +1409. It is also redundant to say that the intermediate trend is over extended in price relative to time.

In my opinion the market's discounting mechanism is way too far ahead of the reality in the financials, housing deflation, and lack of consumer spending. The banks are still not really lending to themselves, or to the consumers. The next bank meltdown in commercial real estate loans and commercial mortgages is unfolding, with some huge potential losses/write downs.

However, my guess is the new Socialist administration will try and postpone it with some more gimmick accounting rule changes, and hope the market bails them out, but it "ain't" going to happen that way in most cases. The Chrysler proposal by Obama was right out of the "Marxist playbook" as he tried to muscle the senior debt holders to take only 0.30 on the dollar for the "greater good", while at the same time giving 55% of the stock to the UAW (what a surprise), which is against all contract law in any kind of language except the socialist countries.  There are only 54,000 Chrysler workers, and the company has gotten $12 billion in bailout funds, yet there are 600,000+ people losing their jobs each week and they get limited employee benefits (go figure).

This is the 3rd time that Chrysler has been in this situation, and we didn't need it in 1970, and we don't need it now. If it didn't work with the company that makes Mercedes Benz, why in the hell do they think it will work with Fiat that has been on the verge of bankruptcy for years, and makes cars nobody wants in the U.S.

Many Hedge funds got left at the gate in the early part of this rally from a very significant price and time zone, and then many got short into the rally, but most have been forced to cover as there has been no correction in this move off the 667 low. The next key price zones in play are the 1998 bear market low of 923, the 1/6/09 high of 944, and then the 200DEMA, which went out at 951.34.

The primary focus in the trading service on technology, energy, and materials has been very profitable for traders, but many of these stocks have rallied more than +50%, and are now bumping against declining 12 months and 200DEMA's, so money has to be taken off the table. However, my guess is that the correction in the commodity sector will be less than some expect.

The catalyst to reach the next higher SPX levels could be the Non-Farm payroll report on Friday, which is prone to significant manipulation by the Bureau of Labor Statistics because of the "estimate factor", especially in the spring reporting. The timing is certainly right to get "overly exuberant" with the estimate data because it will squeeze the shorts more, and also those that have been under weighted in this advance.

Have a good trading day!

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