Time zone this week

Kevin Haggerty is a full-time professional trader who was head of trading for Fidelity Capital Markets for seven years. Would you like Kevin to alert you of opportunities in stocks, the SPYs, QQQQs (and more) for the next day's trading? Click here for a free one-week trial to Kevin Haggerty's Professional Trading Service or call 888-484-8220 ext. 1. 

The SPX declined from 1292.92 to 1261.30 in five days and closed Friday at 1266.74,  -0.4%. Daytraders of the SPY/futures caught two bounces off the 200-day EMA last week, which is now 1262. The index has declined five of the past six days and was -0.9% on the week. The $INDU finished the week -1.4%; QQQQ, -1.1%; $COMPX, -1.3%, and the $TRAN led the downside at -5.5% (-17.5% from the 5/10/06 bull cycle high), closing at its 377-day EMA zone. The SPY and DIA are in above-the-line position (20 > 50 > 200-day EMA). Also in ATL position are the XLE (energy), XLF-BKX (financial), XAU (gold), XLP (consumer discretionary), XLU (utilities), and PPH (drugs). The below-the-line primary downtrends with the 200 > 50 > 20 are: QQQQ, $COMPX, IWM, MDY, XLI (industrials), XLY (consumer discretionary), XLK (technology) and SMH (semiconductors).

The nervous market continues to overreact to each economic data point, and there are many different opinions on the economy. From 1982 to 2000 there were two full 8.6 year business cycles, with high growth and low inflation. In modern times there have never been three in a row. However, right now it appears to be pointing to high inflation and low growth--which is obviously never good for equity markets. Most conventional money managers cannot beat money markets and treasuries during that kind of environment.

NYSE volume dropped to 1.32 billion shares on Friday, with the volume ratio 29 and breadth -1013. The 4 MAs of the volume ratio and breadth are not ST-OS, but the SPX has declined five of the last six days and held the 200-day EMA so far, which means traders can get an upside move here. The Lebanon crisis seems to be over and it is also a time zone these next three days, in addition to an option expiration this Friday. The SPX will, at a minimum, test the top of the two-month trading range this week and maybe even squeeze the shorts hard enough to take it higher, which would be a lucky break for those investors who have done nothing so far regarding reallocation of equity exposure.

Have a good trading day,

Kevin Haggerty