Monday, November 30, 2009

Weekly Watchlist 11/30

Going into December the markets seem to be trying to put in some kind of topping pattern but they got way too negative too fast off the news from Dubai last week. Friday the market recovered some important overnight losses but more importantly the Euro regained the 1.49 area after a steep sell off. The currencies are still running the show and until the Euro has a close under 1.48 then I think it will continue up and you should expect shakeouts like last Friday. Same with gold and other commodities. Gold needed a sharp correction and it got that. The trend is up. The moves in gold will continue to increase in volatility as the price rises. Gold rallied up and thru my 1150 target I stated here in January and I still think gold is headed up and thru that 1200 mark I called for back in late Summer and even higher next year.

As for the SPX, we have 1105-1110 as a must close above area to continue a rally to 1120. If we clear this I think we have a good shot of seeing 1150-1160 for a year end rally. I really do not see a sustained move down coming before year end. Who wants to forgo those annual bonuses that are paid out soon? They will hold this market up thru Christmas imo. After that who knows but I think the media was just drooling for a story last week and Dubai gave them just that. Contrarian indicators are pointing towards at least a continued snapback higher.

Even if we are in the 8th inning of this bull run we gotta play until the last out and evaluate it as it changes. The 50 day ema on the SPX is still trending up and I think this is a very simple but important signal to focus on. One or two days does not make a trend. The trend is in fact up and even though breadth and certain sectors are fading with each new move up in the markets you cannot ignore the phrase.. "Market's will remain irrational longer than you can remain solvent."

The watchlist:


Shorts>> BBT

Monday, November 16, 2009

Currency Corner

I wanted to take a big macro look at the longer term weekly currency charts as I was starting to become a bit nervous of a dollar bounce since everyone is so certain the dollar is going lower and also we have Obama in Asia the last few days and why in the world would the govt want the dollar to be making fresh lows just as the President meets with the largest holders of our debt? Also, Bernanke is speaking on Monday morning so the slightest slip of words could be a catalyst to see action in the dollar. Of course Bernanke knows this and will be safe with his words since he has learned the effects of his speech intraday.

I have started to see some weakness in the oil sector and crude itself. I think oil should have rallied last week after testing the previous 77-78 breakout area. It did not end the week too bullishly and alot of the oil service names that we were very bullish on into the end of year ( ie. OIH, COP, RIG) maybe showing us some sloppy head and shoulders patterns. Now this could just be consolidation but if crude fails to breakout above 80 in the next week or so I think it has a good shot of actually correcting back to 65, which is basically where it should be (or even 50) if you do not factor in the dollar weakness since March. Supply is mounting and demand really isn't coming back full force into the holiday travel season. I think there is a good 15-20 bucks of premium in oil based solely on the weak dollar effect. Nevertheless, I think it will be important to watch crude coupled with the dollar into the next month to see the next directional move. IF THE DOLLAR BOUNCES then oil will probably tumble fastest.

As for the currency pairs, out of the following I think the British Pound (gpb/usd) is the most interesting. It has been stuck in a tight range on the weekly chart for several months and is poised to make a move once it breaks the range. It looks like momentum is to the upside right now so assuming the Pound can breakout above 1.68-1.69 on a weekly basis it could lead the Euro and other similar currencies higher, which of course means the dollar index will go lower.

The EUR/USD is for sure at interesting levels going back to 07 but for it go challenge higher areas I think we would all agree we need a weekly close above that 1.505 mark.

AUD/USD is not far off its 08 high of roughly 0.98 and that sets up a potential retest double top area since the current rate is not far off at 0.9338. The Aussie is of course a commodity currency like USD/CAD and even NZD/USD.

These currencies all look similar since the commodity rally has powered them higher.

The USD/CAD is at important support levels near 1.03. Even though support is here near parity if the commodity trade keeps up this CAD can continue to strengthen against the USD and go right thru parity. But I would expect some kind of consolidation here at least in the short term for USD/CAD.

USD/JPY is also near support between 87.5-89 and could at least get a bounce going into the last few months of the year back into the massive descending triangle that has formed during the last two years.

EUR/JPY is also very interesting to me here as it has formed a nice tight range over the last 6 months or so. This cross rate was an excellent measure of risk appetite back in 08 but has decoupled a bit imo. Even so, it has formed a big ascending triangle pennant with resistance up at 138-139. Currently at 134 this could blast off to 153 into early 2010 if it wants to breakout. Even though the risk measure isn't as tight as it used to be; we can still use this to see how likely the stock market is to rally.

And just for fun the last one is the USD/INR which is the Indian Rupee. If emerging markets are strong then this chart should be going lower (or the Rupee appreciates against the USD). And it looks like it has formed a big nasty head and shoulders on the weekly with a breakdown in the cards. This should mean that the BRIC nations will be strong into 2010.

Overall, looking at all these weekly's and your USD thoughts I think it is prudent to be expecting some kind of dollar bounce in the coming weeks especially since the sentiment is so extended to one side, however I think we are still early to predict a intermediate or major USD bottom followed by a rally.

Sunday, November 8, 2009

Weekly Watchlist 11/9

Neutral. That is my current read on the markets going into the week. We got a nice rally off 1030 last week and now we have the 1075-1080 resistance standing in our way on the SPX. Indicators seem to be showing us bullish signs and sentiment got much too negative on that last little correction off of 1100. The percentage of bears as calculated by several important weekly surveys was as pessimistic as they were at the March bottom! That says alot on the current opinions of all market participants and says that we do have fuel to the upside if the market wants to go with it.

After the jobs report its hard to see what the bears have for their case to push this market lower going into a seasonal strong period for stocks. At the same time what could be the catalyst to send us thru 1100 on a new rally? Other than the overall momentum of the uptrend that began in March it is hard to see many events that give us a meaningful move in either direction going forward. Earnings are winding down and the fed meeting has passed. Which is why I think we have a very good shot at seeing a nice trading range develop between roughly 1020-1100 SPX into the next month or so.

Selling iron condors and other theta positive option strategies could be the ticket to profits as well as taking quick profits on directional moves that get overextended short term. If a new trend develops we will go with it but for now I think it is right to take quick profits and expect some churn and burn.

Econ data and earnings for the week 


Buy the Dips>> TGT, WLT, MA, CL, ICE,  NFLX, PRGO

Sell the Rips>> STI, MET, FAST, VMC

Sunday, November 1, 2009

Weekly Watchlist 11/2

Going into November the markets are coming off a very tough week. 1100 SPX seems to be a top for now and last week proved that the selling was different than prior selloffs. Volatility is back with the VIX popping to 30 on friday. For the time being it seems like we should test further downside support in the SPX. The 50 day ema was broken and the SPX lows from last month at 1020 are next support. Below that and I think you can expect to see 987-1000 eventually which is just about where the 200 day ema sits.

The RUT and SOX have led the way lower as they failed to make new highs with the SPX and Dow and formed double tops. That is a pretty bearish sign when key sectors like the Semis and Small Caps show negative divergence like that. And of course the dollar stayed strong into friday and put pressure on commodities and stocks. If the dollar sustains this level or higher for a few more days it will make dollar bears cover their shorts and you can see some additional pressure on stocks.

FOMC rate decision this week and jobs report on friday will be what everyone is watching. Just watch the charts and price action to see what to expect. All in all, I think for the coming weeks you need to be selling longs into rallies and trying to approach the short side of the market to play the downside expecting at least a bit more volatility.

It's really tough to see any good swing trades setting up here at these levels and earnings season still here.


Buy the Dips>> RDY

Sell the Rips>> FDX, PRU, HON, KRE, RIMM