This Bear Market is Not Over

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 market action was weak on Friday, the first day of the new month, and that carried over yesterday as the SPX opened down and took out the prervious 1255.18 low on the 9:40AM bar, and then traded down to a 1247.97 low before reversing. The -1.0 VB was 1246.11, and the .50RT to 1200.44 from the last rally high at 1291.17 is 1245.80, so there was symmetry for daytraders to work with, on deciding whether or not to take the trade. The reversal ran to 1260.49 on the 2:45PM bar, and then it was straight down to a new intraday low at 1247.54, and 1249.56 close, or -0.9 on the day. It is significant to note that the decline accelerated on the 3:20PM bar just as it did on the last day of the month which preceded a vertical move up the previous day on 7/30. This kind of market action is all program agendas.

NYSE volume was only 1.23 billion shares yesterday, with the Volume Ratio 33, and breadth -1017. The most signififcant market action was in the energy and commodity sectors, as crude oil traded below $120, and below a 122-120 support level. As a result, the OIH was -5.5, XLE -4.7, XLB -4.3, HUI -3.1, and the USO was -3.5. The SPX did not advance, as you would expect with a drop in crude like that, but with the financials also down (XBD -1.9, BKX -1.4) there wasn't any other leadership except the PPH (+1.3), and that is not enough. The INDU finished at -0.4, and the QQQQ -1.0.

However, crude oil is now trading at 118.72, as I do this, and the SPX futures are +9 points, with the INDU futures at +71 points, so we will find out early if the Generals are going to put any real money to work. We get the FOMC statement this afternoon at 2:15PM, and the CNBC empty suits have started their normal hype, so that means the best trading opportunities for daytraders will occur in the first hour, as it usually does on FOMC days. If they raise rates, as three of the Fed Presidents seem to favor, it would be a mistake, because you don't fight the rising oil and food prices with monetary policy, especially when the food prices are primarily caused by the Ethanol boon doggle by our rocket scientists in Washington.

The market is neither short term O/B or O/S right here, and the SPX is trading at the mid-point of the 1291.17 rally high, and initial 1200.44 low on 7/15/08, so it is not a high probability level for short term position traders. The intraday volatility, especially in the energy/commodity sectors, remains high, so daytraders have a distinct advantage.

The energy sector has corrected sharply, and the long term trend lines remain intact, so expect another good move up in this sector, which is about as O/S as it was at the lows in 2002 (XLE). The SPX is in a bear market rally, and not the beginning of a new bull market, but that doesn't matter so much for intermediate, and short term position traders, because the swings both ways in a bear market from key price zones provide excellent opportunity. However, I still think the SPX will trade below 1200.44 before this bear cycle is over, and the economic downturn will be more severe than people currently expect.

The next commentary is Thursday, 8/8/08.

Have a good trading day!

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