Sunday, October 19, 2008

This Week's Trade

After a pretty volatile week last week we finished up 4.6% as the SPX closed at 940. Although this was acceptable it was well off the week's highs of around 1040. I think this week we could have some upside momentum that pushes us up towards the 1000 area on the SPX. Last week's key outside reversal day was pivotal in my mind and as long as we hold the 900 level on the SPX I think we could be grinding higher. Not expecting anything explosive to the upside, or downside for that matter; but rather a calming of the volatiltiy to where the VIX may read somewhere closer to 45 instead of 75. I do not expect this market to trade of out of the 900-1100 range for a while.

I'm seeing more and more signs that the bottom from Oct 10th could hold as an important long term low. If thats the case then I would expect to see continued apathy and dejection from investors. After a long term low is put in everybody that capitulated into that panic bottom then feels dejected and unmotivated to do anything. They would rather go have a beer and come back in 3-6 months to test out the waters once again after the initial depression wears off. This is a period of apathy that the markets experience and usually form a range that can stay fairly wide and volatile, but the primary feature if this period is a lack of trend. I could be wrong but this is my current interpretation of where the action is headed.

That being said we have a light week on the economic data front with just some inital claims coming out Thursday and existing home sales for Friday.

I think the headlines this week will be centered on earnings season and more than likely, the lack thereof. Last week's surprises came from Intel and Google and this could mean that estimates are a bit too bearish on some of the tech names out there reporting this week. AAPL reports Tuesday after the bell. On Wednesday AMZN and BIDU report. Thursday MSFT gets its turn. These are just a fraction of the interesting companies reporting their numbers this week that you should watch to see if the recession is having a large effect on their businesses. I never trade earnings because it is a crapshoot but if the market closes strong on Monday we could have a nice run-up in these names heading into the numbers.

Overall I am bullish on the markets this week above the 920 level in the SPX, underneath that I may look to be more short biased. Assuming we hold the support underneath us this week I could see us rising back over 1000. Sell into resistance in the 970, 985, 990, 1020, 1040 areas and dont fall in love with the upside no matter what traders! Trade safe out there this week.

No comments: