Traders Win in a Secular Bear, But Most Investors Will Lose

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 declined 3 days in succession for the first time since the 667  low (3/6/09). The -5.1% decline made an 882.80 low yesterday, versus the 881.33 20DEMA, with the 50DEMA at 851.23. The key price and time zone is 923-950, with 923 being the 1998 bear market low, while the 200DEMA is now 949. The time zone was 5/5-5/8 (+/-2 days)

Figure 1: SPX Chart

Techs reversed first as the QQQQ hit its 35.34 high (+38.2%) on 5/6, and has declined -6.7 in 5 days, while the SPX hit its 930.17 high on 5/8 after a +39.5% advance in 44 days. All of the major index advances are obviously extended in price relative to time, and that can't be sustained, so there should be no surprise that these markets will make some Fib correction to their March lows for the Wave 2 leg of this advance. I included both the TRAN and OIH charts, which were extremely extended in their 62 % gains versus the 42 days up for the TRAN, and 43 days for the OIH. Both of them gave you outside day reversal bars at the 200DEMA and have declined -13.6%, and -10% so far.

Figure 2: QQQQ Chart

Figure 3: TRAN Chart

Figure 4: OIH Chart

The $US dollar decline has given strength to the rising crude oil and gold prices, and after the correction in the major indexes I think the energy, materials, and other commodity related stocks will have a strong Wave 3 leg up after the current highs are reversed. However, that assumes there is at least a .382 Fib correction to their current bear market lows which will confirm current highs as the Wave 1 high. Most often it will be a .50RT but if it reverses from only a .382RT it is usually a very strong Wave 3 leg.

Trading the market is one thing, but you must realize that the arbitrary intrusion by Government in business with total disregard for contract law, unprecedented spending, taxing, and debt expansion, will lead to very low, if any growth, and a very bad ending for longer term investors for the rest of this Secular Bear market.

 However, given the Government credit for the con job they are doing about the financial condition of the banks, because it gave extra momentum to the rally, and still might, but make no mistake that it is a con job, and there are significant write downs etc ahead for the financial institutions.

Have a good trading day!

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