Mid-term election and month-end markup

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 closed the week at +0.2% to a new weekly closing high of 1368.36 as did $INDU, +0.3% to 12,002. The internals did not confirm the new highs, as the up volume/down volume ratio was .95 compared to the week ending 10/13/06 when it was 1.6 (898mm/56mm). Fewer stocks continue to push the averages higher, which is also reflected in the weekly moving average of new highs vs the major indexes. The SPX is now +3.1% above the 5/8/06 1327 high. This is +41.6 points, and 35.8 points of that gain occurred on just 3 days, which are 9/26/, 10/4 and 10/12. Each of these days was preceded by two 5-day ranges and one 8-day range. The SPX is currently in a narrow 6-day range, since the last markup day on 10/12. So with the consensus already conceding the House to the Democrats, which, by the way, will put Nancy Pelosi in position to be the next in line for the Presidency behind the Vice President, it is time for another Republican markup day. When I saw that President Bush was scheduled to interview with Maria on CNBC, I immediately assumed he will need some backup, and that should be another markup day out of the 6-day range. It doesn't take much to run the futures up, which then accelerates the buy programs, which in turn forces institutional buyers to participate and any shorts to cover at new highs, in addition to the retail herd that just follows price up.

Despite the current decline in crude oil, traders have been able to capitalize on the long side, as the OIH has advanced +13% in 13 days off the 118.19 low on 10/4/06 to Friday's 133.60 intraday high, where it hit expected long-term moving average resistance zone, with the 233 dema at 133.88 and 200 dema at 135.07. Most of the daytrading opportunities in this sector have been intraday reversals using the Trap Door, RST and 1-2-3 trading strategies. There must be some retracement before the game starts again.

You know it is a strange market when the SPX and $INDU make new bull cycle closing highs on the week, yet on the downside for the week, you have the semis, financials, retail and cyclicals. For the week, the SMH was -5.4%, BKX -1.4%, XBD -2.0% and RTH -1.3%. The leadership consisted of the drugs, with the PPH +2.6%, and energy with the OIH + 1.9% and XLE +1.5%. Not the kind of leadership I like to see at new highs.

The midterm election prop under the market should continue, just like you saw on Friday with the SPX and $INDU. The $INDU declined sharply on the open due primarily to the CAT implosion, when it opened down -10% on earnings, before finally closing at -14.5% (CAT | Quote | Chart | News | PowerRating). However, the DIA reversed from a 119.33 low at the -1.28 VB on the 9:55 AM bar and traded up to 120 before closing at 119.93. The imploding stocks continue to expand. In addition to CAT, there was (AMD | Quote | Chart | News | PowerRating), (APOL | Quote | Chart | News | PowerRating), (CTXS | Quote | Chart | News | PowerRating), (SNDK | Quote | Chart | News | PowerRating), to name a few. With over 7,000 hedge funds chasing similar stocks, it gets crowded at the exits, especially when the generals are also at the gate. Expect any new crisis or negative news downside "air pockets" to be reversed for the next two weeks, and then "good luck on your mission." If there is early weakness this week, expect the generals to step in for a month-end markup.

Have a good trading day,
Kevin Haggerty

Check out Kevin's strategies and more in the 1st Hour Reversals Module, Sequence Trading Module, Trading With The Generals 2004 and the 1-2-3 Trading Module.