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The SPX had
rallied to a 1280.19 close on 7/03/06 from the
1219.29, 6/14/06 low. This S/T OB condition preceded the current five-day
decline back to the 200-233 EMA zone, with intraday lows yesterday for the SPX
at 1259.65 and 125.94 for the SPY. The SPX 200-233 zone is currently 1261.54 -
1256.54. For the SPY it is 126.25 - 125.73. After the early decline
yesterday to these zones--which was also the daily -1.0 volatility band
level--the SPX/SPY re-crossed their 200-day EMAs for a trend-up move in the last
two hours. The SPX closed at 1272.52, right at the 1273.50 RT to 1326.70 from
1219.29. This five-day pullback sets up a quick move to 1286, which is the .618
RT level. After the KLAC hype about a good quarter, the "Street' will probably
get their spin machines out and it will be enough to squeeze some shorts. The
spin will be "the worst is already discounted, etc." However, any short-term
move in the semis will be greeted with more selling. The SMH (+3.0%) has initial
resistance at 33.50 - 34 and declining long-term EMAs at 35.40 - 35.50. Going
into yesterday's trading the SMH was the most oversold, with a 5 RSI of 21.9,
and then the QQQQ, 28.2, and XLK, 29. Those with a 5 RSI > 70 were the PPH, 81;
XLV, 77.5; XLE, 76.3; XLU, 71.4; XLP, 71, and the XAU, 70.3. This clearly
highlights the current bear cycle perception by the Generals.
In addition to the major indexes, the best daytrading opportunities yesterday
were mostly in energy, gold and healthcare, but that will broaden if they run
the SPX to the 1286 zone from this current five-day pullback. The XLE has
bounced +16.4% from 50 to 58.21 (7/6/06) in 17 days and closed yesterday at
57.90. The bull cycle high magnet is 60.15, and that could get taken out before
a short-term selloff. NYSE volume was not heavy yesterday at 1.57 billion
shares, with a VR 55 and breadth +836. The ST-OB condition has worked off, with
the 4 MA of VR neutral at 50 and breadth +413. It was mostly energy and semis
yesterday, with the OIH 2.9%, XLE +1.8% and the SMH +3.0%. The TLT was +0.3% and
has been positive four straight days.
The summer trading will be erratic, with ST-OS rallies that will run into stocks at higher levels and then we will see new lows despite what Wall Street's spin is.
Have a good trading day,
Kevin Haggerty
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