Sunday, January 25, 2009

This Week's Trade 1/26

I believe this will be a telling week in the market and may very well determine the trend for the next several weeks. We are so close to breaking that 800 level on the SPX so I would think that the shorts might push the market down to retest the lows. However, if we do hold the 800 mark then we should be in for a heck of a move higher.

I like to take a look at the longer term trend as much as possible because the long term direction guides the short term. Looking at the weekly chart displayed you can see that the RSI is still downtrending and has shown NO signal of breaking this downtrend even as the market has had short lived bear market rallies. Until this weekly RSI shows a sign of reversing then you should assume the bear market continues. Period.

After we gapped down late last week multiple times, the market filled the gap and rallied. It will be interesting to see if this pattern breaks Monday because it looks like we may gap down again as of Sunday night. The ES futures are down around 815 after selling off under the pivot tonight.

For Monday, the daily pivot stands at 821.50. If we open below it then I would look for a test of that level and then a rollover where there could be a good short entry. I am not bullish on Monday unless we can get clear over the pivot and preferably over 825. I dont really think we rally Monday but of course anything may happen. Just be ready for a ugly day if we cannot get over the pivot and even more so if we breakdown under 800.

Economic data this week is heavy and includes:

Monday- Existing Home Sales, Leading Indicators
Tuesday- Consumer Confidence, Case Schiller Index
Wednesday- FOMC rate decision (which doesnt really matter since rates are essentially at 0)
Thursday- Durable Orders, New Home Sales, Jobless Claims
Friday- GDP Q4, Chicago PMI, Michigan Sentiment, Employment Cost Index

Overall, it will be an interesting week in which I think volatility could expand and as traders, thats what we wanna hear. I think before we have any kind of sustainable rally in the markets that the banks MUST take part in it or even lead the way. That hasn't happened, with the XLF making new lows last week and the transports very close to do the same, I just cannot be bullish on this market in any timeframe. You gotta trade the market you have, not the one you want. Either way, trade safe.

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