The Market Will Not Accomodate the Crowd

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 anticipated reversal from the key time zone last week and 1101 high, hit a 1042.19 low on Wednesday which was a -5.4% decline (high to low). The Generals were expected to keep any pullback from accelerating in front of month end, and to most likely initiate a mark up bounce into month end, which we got yesterday as the SPX was +2.3% to 1066.11 from the previous 1042.68 close. Going into yesterday the market was extremely ST-O/S, and the USD was declining, so the pieces were in place  for a bounce.

The $US Dollar advanced for 4 straight days making a 9-day high which resulted in a -4.6% SPX decline in 4 straight down days. The SPX probability for a reversal was high because of the O/B condition at the key price/time zone. I said in the last commentary that any short covering rally in the dollar would put pressure on the equity market and commodity sectors. The short dollar trade is obviously very crowded, and for good reason, because of how Washington is digging our grave with it's fiscal and monetary policy.

The USD was down, and commodities up, well before the hyped and meaningless GDP report at 8:30 AM, which was +3.5% annualized. However, 92% of it was comprised of non recurring factors (shadowstats.com), such as the cash-for-clunkers disaster, and 1st time home buyer credits. There was also a buildup in inventories which inflates GDP but is certainly not a positive. The declining dollar yesterday gave the Generals room to play mark up, and the GDP hype was an artificial assist. The Administration con job started right after the GDP report, and they trotted out the bodies all day long to hype how great the stimulus is working. It is working so well that the banks aren't lending, the consumer isn't spending, and job losses continue to mount, yet Washington keeps telling us about all the jobs that have been created or saved because of the stimulus. Give us a break!

The SPX futures are -5.2 points and commodities down as I complete this at 9.00 AM, simply because the USD is up, and that continues to be the engine for the equity and commodity markets. If the dollar doesn't reverse today, the Generals will have trouble playing the mark-up game. The Generals can't be that aggressive on the last day of the month because that is about the only time the Regulators pay attention.

The initial SPX pullback to the 50DEMA was the 1020 low on 10/2, and then it rallied with the declining dollar to the 1101.36 high. This current pullback is also to the 50DEMA (1047.62) so the bounce yesterday has the crowd looking for another strong move up. The market rarely accommodates the crowd so it should be no surprise when the SPX declines into the mid-Nov key time zone before any season rally starts.

Have a good trading day!

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