The Good News Bad News Market

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 finished last week at +5.9 to close at a 929.30, with a weekly high of 930.17 on Friday. Both of these were new rally highs. Bank stocks became glamour stocks after the Q1 artificial earnings made possible by the new "funny money" accounting rule changes implemented by our leaders (?) in Government. The best line sent to me on the banks was that "Geithner's PPIP program will allow banks to exchange trash for cash, and turn losses into artificial gains".

However, the banks have not started lending in any significant way to corporations, consumers, and certainly not to themselves, because they know that there are more significant losses down the "short road". The stress test result was finally released last week after 10 days of deliberate leaks by Geithner's "Comrades" because they thought it would have a negative impact, but it was just the opposite as the BKX finished the week +33.2% as the shorts were squeezed big time.

The jobs report on Friday of -539,000 was also hyped, but the empty suits on CNBC forgot to mention that it included the Bureau of Labor Statistics "mystery estimate" of 220,000 jobs added by the birth-death ratio as a result of new business creation, which is pure fantasy in the current market. Also, 66,000 jobs added were census bureau workers, so give us a break CNBC.

The SPX has advanced +39.4% off the 667 low (3/6/09) and the extent of this move without any significant retracement to the 667 low has surprised many money managers, and certainly me. However, that is only a problem for those that didn't buy the market in March at the long term key price and time zone for the SPX, but the Trading Service didn't have that problem.

The Wave 1 high will not be in until there is a Wave 2 correction, and that won't even start until at least the lows of the current rally high outside bar in both the SPY and DIA get taken out (see your daily chart). This is a key price zone for the SPX starting with the 923 1998 bear market low through the 200DEMA which is now at 950. By any momentum or sentiment criteria the market remains extremely extended, especially in price relative to time.

The rally was 45 trading days old yesterday, and the SPX declined -2.2% to finish at 909.24 The market has moved higher in a choppy manner the last 6 days as the SPX has not been up two days in succession on the way to the 930.17 high. For the last 6 days it has finished +3.4, -0.4, +1.7, -1.3, +2.4, and -2.2. The primary focus sectors have been leaders such as energy, materials, and technology, and the strength in commodity sectors has been driven by the decline in the $US dollar, as the USD is now trading below its 200DEMA (83), and went out yesterday at 82.72 and is headed lower. This decline indicates that crude oil and gold will continue their upside moves.

The good news is that the highest probability is that there will be a Wave 3 advance after a Fib correction to the 667 low, and the bad news is that the Governments' current strategy is a death sentence for any prolonged bull cycle, so the question is will you know when to take your long term chips off the table.

Have a good trading day!

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