The Green Shoots Have Turned Red

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 has been trading in the 923-950 key price zone for the last two weeks on a significant decrease in volume. There have been several positive SPX day trading opportunities from each end of the range, but day traders have reaped the most benefits from the energy and materials sectors, in addition to selected Tech and Industrial stocks.

There has been a significant increase in Treasury yields as the 10-year T-Note hit 4.0 at the Auction this week, and this has accelerated the 30-year mortgage rate to 5.76 yesterday, which is a far cry from the recent 4.5 to 4.87 rates that resulted in significant refinancing and home purchases. The Derivative Meltdown, which was caused by the sub-prime crisis, and deflating home prices, is not going to turnaround with these rising interest rates.

The Fed and the Administration want the 30 year rate below 5.0, but it looks like the Fed is caught between the rock and a hard place, because the risk premium for buyers of our Treasury debt now commands higher yields. Already, refinancing has ground to a halt, and in 2010, and 2011, there will be 75% of the Option Arm mortgages resetting. There was $750 billion of these Arms originated from 2004-2007, and with the rising bond yields, that will mean a significant amount of foreclosures on top of what we have already. How is that a green shoot?

The SPX hit a 956.23 intraday high today on a 3 bar bounce after the 30 year auction went out at 4.72, which CNBC spun as better than expected, but it didn't matter as the SPX reversed down to 943.75 before closing at 944.80 The NYSE volume was light at 1.2 billion shares, with the Volume Ratio 65, and breadth +711. The $US Dollar declined early, and this sent the energy and materials stocks trend up as crude oil also advanced.

The energy, materials, technology, and selected industrial stocks have been the trading services stock focus for quite some time, in addition to their ETF's, and that has been spot on for traders. There have also been significant gains in other primary focus commodity ETF's like the DBA, and DBC. Some of the pundits are calling for $35 oil again, and others like GS is calling for $150 plus, and it is probably the same guy that was saying $200 before it collapsed. However, price is reality, and the OIH made new highs today breaking out of its current range, so it remains a key sector for traders, especially on continued $US Dollar weakness.

I had said the 923-950 range would be resolved this week, and I thought it would be to the downside, but with one day left, I am not looking too good. However, the market is stale, as it has been trading for 9 days in the range, and the volume has dried up because of the lower volatility. I still disagree with those that are calling it a "V" bottom, and I still think we will get more than a .382 correction to the 667 SPX low before there is any chance for a Wave 3 up.

Have a good trading day!

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