Thursday, September 9, 2010
Its a short holiday low volume week but I wanted to do a short post on this market going into Friday. We have had a great rally up in the last week and with the gap up today it was a nice time to dump longs and wait for a pull back. I think we are flagging out on the daily for a larger move up towards 1130 next week. Options expy for Sept comes next week and could be setting us up for a nice move as any remaining shorts will be forced to cover above 1106. The launching pad needs to be set first and a proper 2-3 pullback to 1080 would be nice but if we only get to 1090-1093 then watch the price action for reversals to get long.
EUR needs to hold 1.2650 in the short term but looks vulnerable there. Yen needs to weaken a bit more for risk appetite to be fully on. Copper is holding up fantastic and dips should be bought there. Oil is a bit less certain but as long as it holds 70 the market wont mind. Gold double top looks legit for short term and pull back to 1220 is likely before any major breakout. Also the bond market is pulling in nicely increasing the appetite for risk so this tells me cash will be put into stocks.
Quarter-end is coming in just a few weeks as well so do not underestimate the power of money managers chasing winners to try to eek out some gains in this crazy choppy 3rd quarter the markets have seen.
I believe you need to buy dips for now into options expy next friday and actually think the market can stay bid and grind higher into October 1.
Lots of leading momo tech stocks are holding up great in the last few days. A list of these I like on the long side is below.
Buy the dips>> AMZN, NFLX, BIDU, TSL, SWKS, CMI, APA, COP, GS, SAN, SHOO, WYNN, CXO, SPG, GMCR, FFIV, AKAM, RVBD, VMW, CRM, FCX, CLF, AGU
Monday, August 30, 2010
Last week the market had an ugly week and ended Friday with a little relief rally courtesy of the Bernanke speech. All the market really did Friday was rally up to the downtrend line near 1070. This week we have tons of data to digest and it starts Tuesday night with China PMI, then Wed ISM and ADP, claims on Thurs and finally the jobs report on Friday. I dont see any of these reports being good but its all about how the market trades into and after the news that counts. My thought is that above 1070 there is a chance that enough shorts cover to push this thing up to the 1080s but I would be surprised to see much more than this. I do think that if we rally into the jobs number then it could be the best shorting opportunity of the year as these markets are so ready to give up the ghost and roll over towards 980. There are very few weekly charts out there that make me bullish longer term.
I was reading the AAII sentiment survey over the weekend and everybody seems to think its giving bullish signals. I dont. First off, yes the % of bulls is lowest since March 09 at 21% bulls. BUT, the amount of bears is only 49%, versus 70% bears in March 09. Not enough fear I say. This is a different market and most people have given up and are either neutral or agnostic and totally apathetic towards the market since they have lost so much money in the last 3 years.
Currencies- EUR is still looking heavy breaking 1.27 this morning and this is a huge level going forward. The JPY got weaker since rumors of BoJ intervention came into markets but it has rolled back down from 86 to 84.5 this morning. It does not matter what the BoJ does or says, the yen WILL get stronger and thats just how markets work. They rule and will ultimately go wherever they want. JPY next stop is likely 83. Risk crosses like EUR/JPY and AUD/JPY are still weak besides the relief rallies that eventually fail. The bottom line is risk appetite is not on the table yet.
Commodities- Oil bounced off 70 last week and tested 75 before pulling back a bit today. I am bearish of oil and think it gradually heads lower from here. Copper remains bullish and it is about the only thing economically that looks strong. The copper move is impressive but it seems like the market is not following copper as much as it used to. Gold and silver look bullish but need some rest and should consolidate into next week before testing the highs of the year. The grains are the most bullish charts out there right now and remain in buy the dip mode.
Buy the dips>> ARUN, PCLN, EGO, SLW, UXG, AMZN, RVBD, FFIV
Sell the rips>> WLT, AAPL, INTC, MELI, GS, BAC, X, ISRG
Monday, August 23, 2010
It's make it or break it week in the market and I think they will break it. Meaning that we go lower. Any bounce Monday back up into the 1080s is a fantastic selling opportunity. If we take out the 1060 lows from Friday I think its a solid reason to think we head back to the July lows of 1010 and blow right thru them with conviction to test the 979 area. That is a fibonacci target I have for the next leg lower based on the July rally. The market would have to get up and close above the 1100 level for me to change my bearish bias.
This week the econ data is quiet in the early part but everyone will be focusing on the GDP report released Friday. The following week is a bigger data release week as ISM, jobs report, and China PMI all come out ahead of Labor Day weekend. This is going to be an interesting last two weeks of summer as many people in finance are on vacation and volume is light. I dont expect any of this econ data to be good or bullish so it could be the catalysts for the next leg lower getting under way.
Sentiment got a bit more bullish on the AAII survey with 36% bulls and 31% bears. This survey has converged and even though its not tilted too much to a contrarian signal it is interesting that sentiment is overall mixed to slightly more bullish than it was in early summer even as the market had chopped sideways for 3 months.
Currencies- The EUR has broken its uptrend and looks very weak now breaking 1.27 this morning. I think this is just the start of the next leg down in the EUR and rally up in the DXY that should last for the next month or two at least. EUR could easily see 1.25 this week and eventually back to 1.22 in the coming weeks. The AUD is leading the stock market and looks weak for now as it pressures commodities lower. JPY is looking bullish as it just flags out and that could take USD/JPY to new lows in the coming weeks. Short foreign currencies into rips is the trade for now.
Commodities- Oil looks terrible since breaking its uptrend last week and is now down 10 bucks in two weeks. I think any bounce here is a short this week as crude looks like it wants 66. Copper is the only thing holding up the market for now I think as it flags out above support. 321 is the level to watch on copper on the downside. Gold is in no man's land but if it trades sideways and consolidates this week that would be the most bullish thing for that chart.
Buy the dips>> CRM, VMW, RNOW, GMCR, BTU, HOGS, JOBS, NTES, EDU, MCD, CMG
Sell the rips>> FCX, ISRG, RIMM, AAPL, GOOG, OIH, FXE, MA, QQQQ
Sunday, August 15, 2010
Last week's selloff after the Fed statement was a game changer and I think that this market needs to prove itself back above some key resistance levels before I get bullish. I have been playing the trading range of the summer from both sides but I do have an overall bearish view for the markets into the end of the year and 2011. Long term I am int he double dip camp and I think its foolish to think the economy will recover beyond where it already has. Tops are processes and not events like bottoms usually are. So with that said I think we have been forming a long term top this past 6 months and the path of least resistance is down as long as we stay below the highs of 1131, which I am thinking are legit highs at this point for the short and medium term.
Early this week could be quiet and that might give the market a weak bounce back to the 1090-1100 level but that will be a chance to short into it and buy puts as I think we test 1060 this week as that is roughly the 50% retrace of the July rally up. If that is broken then 1040 and then 1010 is very likely to come calling fast.
The thing to remember is that last week the selloff really took some indicators like the McClellan to decent lower levels which doesnt mean they cant go lower--infact I think they will--but the downside in the short term is limited and the best place to get short is on that potential bounce to the 8ema or 1090s in the SPX.
Patterns like the one present in the SPX where a market rallies up off new lows like it did in July only to fail at resistance and quickly retrace are not patterns that usually hold up on the next test of support. So I think upon the next move lower into the July lows they will breakdown and the real selling will only be getting started in the medium term as a 979 first target is on the table going into the next month imo. Write it down. That is a 127.2% fib extension of the July rally.
This is probably also a very good time to get to cash in your 401k or longer term retirement investments as I believe the highs are in for the year and a bear market is on the horizon. I will write more about this in the coming days and weeks.
Currencies- The EUR/USD is now back to leading the stock market as it broke its uptrend last week and sold off violently after the Fed statement put a bid into the dollar index and bonds and gold. The EUR is headed lower and 1.25 is a good first target going forward. AUD/USD is testing the 50 day at 0.89 and could bounce short term back to the 0.91 but looks like it could chop a bit this week near these levels.
Commodities- Crude had a big reversal down last week and looks bearish again as the low 80s are too tough to crack. There is really no reason oil should be this high to begin with so I wouldnt be surprised if it came back to the high 60s on the next selloff in the market. Longer term H&S possibly setting up on crude. Copper still looks decent above 3.15 and is just consolidating its recent huge advance higher. Gold is key this week as it needs to close above 1225 to look bullish to me and if it doesnt then a break below 1195 would be troublesome to the bulls. Grains sitll look like the strongest market out there with corn and wheat leading the way.
Buy the dips>> AMZN, BIDU, LVS, NFLX, PRGO, POT, AGU, PPO, MELI, GMCR
Sell the rips>> AAPL, LULU, BAC, MGM, KLAC, GOOG, PBR, HES
Monday, August 9, 2010
This week it is all about that 1131 resistance level on the SPX and I do expect the bulls to run past it and then we have a clear shot at seeing 1161 as a pretty easy target to get out of longs. Options expy for August is in 2 weeks and I expect the bullish momentum to stay here into that date. Last week the Friday reversal was very impressive as the SPX tested the 200 day at 1115 and buyers stepped up into the weekend. Textbook. I have no reason to be looking for swing shorts until we lose that low from Friday or more likely the 1093 level that supported us two weeks back.
The sentiment in this market is still decidedly bearish as the most recent AAII sentiment survey returned just 30% bulls. The lowest bullish reading since July 1 when we were--you guessed it-- AT THE DEAD LOWS of 1010 SPX. I think this is easily the most bullish data I have seen since the market rally started. To say that we have rallied up over 100 SPX points in one month and this survey still shows only 30% bulls says that there is plenty of room to rally on the upside. This is a buy the dips market and until that changes then why should you?
FOMC meeting on Tuesday should make for quiet trading ahead of that but afterwards it could be the catalyst to spark some more buying especially if the Fed hints at more stimulus coming to a zip code near you.
Currencies- EUR/USD just keeps trucking and I think the 4 hour chart looks bullish for a potential move up to 1.35 as that is the 50% retrace of the entire selloff. But first it could easily pullback after the run its had. GBP has had a huge move up lately and nearing the 1.60 level of resistance could stall it out and at least give it some consolidation. USD/JPY is the story out there as it is making 15 year lows near 85. The weekly and monthly charts here show breakdowns and that could go to 80 in the coming months. Watch out for the Japanese to intervene however as a stronger yen only hurts their exports.
Commodities- Bonds are important to watch here as the 10 yr just keeps making new highs and yields are now at 2.82%. This is not what the stock bulls want to see and if this keeps trending then the stock market will correct lower so you want to be aware of the bonds. Crude and copper are consolidating above recent key levels. They are a bit extended and could easily pullback if the dollar starts to bounce like it seems to want to. Gold is interesting here as it has bounced off recent lows and is catching some resistance up over 1210. If this fails to get back over 1215 and actually slides under 1195 you could have a continuation selloff in gold that might be fast and furious.
Buy the dips>> AAPL, AMZN, BIDU, NFLX, SHOO, MELI, FFIV, EMC, DECK, GMCR, CMI
Sell the rips>> GOLD, RIMM, WDC, CME, ICE, JCP
Monday, August 2, 2010
I have been calling for this market to rally higher into August since the early July reversal down at 1040 and it has developed a very bullish pattern as the SPX has put in a couple decent higher lows as it rips the shorts heads off on rallies. Last week I was buying tech stocks like BIDU, CREE, AAPL plus others like GS, SPY and FCX and I think I had just about the most messages ever from amateurs on Twitter telling me the market is going to crash and I am crazy. I knew the market was not going lower, especially after I called the late week pullback to 1090 and it held as a dip buying opportunity. This said the bears could not get enough ammo on the downside and subsequently failed to sell the market down. Whenever I see this amount of bearishness in the public I take a contrarian view and look away. This simple look at sentiment told me what most traders were looking for and if they were wrong--as the crowd normally is--then they would have to cover their shorts and that the rally is not over. For this reason, among others, I felt great going into the weekend the most long I have been in months. It sure did pay off Monday.
As for the rest of the week I do think we should test and attack the 1130 level just overhead as that is the June high and the market is looking like it wants to get above there before any pullback. I do still think we rally into August options expy which is the 21st of this month. After that we will have to check to see how sentiment is and assuming we do grind up for the nest few weeks then I think a logical target to see on the SPX is 1160 which is the site of a unfilled gap from May.
Longer term view I have is that after summer into September we do see more selling pressure and perhaps we could be topping out for the year on this next high, wherever it may end up being. I see a gradual selloff taking shape into the fall that could see us breaking to new lows on the year. We shall see.
Currencies- EUR is making new highs at 1.3195 as the dollar index has been cliff diving. EUR seems like it wants to test 1.33 before retreating.The /dx has basically went down in a straight line from 88 to 81. This is probably going to catch support between 80-81 and see a relief rally back to 83's I would think. The foreign currencies have been on fire with AUD/USD leading the way hitting 0.9145 this morning. It does seem like it wants to challenge 0.93 eventually but a pullback to 0.905 wouldnt shock me first. GBP/USD hit 1.59 today and looks so stretched I'd hesitate to buy but instead look for retracements back to 1.56 soon. USD/JPY still weak down at 86.50 and looks to break lower to new multi-year lows.
Commodities- Copper has led this rally for the last two weeks as it was 3.00 just 10 days ago and today has hit 3.39. Crude oil finally busted that 80 level this morning and looks strong on the daily charts here as long as 79-80 holds as support going forward. Gold rebounded slightly last week back into the 1180s and could be rangebound here unless it gets above 1205 or back below 1170.
Buy the dips>> FCX, BIDU, CREE, CLF, OIH, WLL, DECK, VMW, FLS, CMI, CTSH, CRM, FFIV, GS
Sell the rips>> RIMM, GOLD, MA, ZMH
Monday, July 26, 2010
Stocks are coming off about the best week in months as Friday the SPX closed at 1102 and solidified a positive week of price action capped off with the stress test results squeezing more shorts as the bears failed to push the market back lower. The bad data has simply been priced in at this point and with a nice higher low in place I think a decent base is being made here with crucial support down at 1093 ish. I have a bullish bias for the remainder of the month and into August. I think intermediate term we can grind up all the way into Labor Day in the first week of September. In the short term everything looks good but too good. I think we can easily test 1130 this week which is the high from June. But at some point this week I expect a pullback to the 1090s which will be a buy.
Like we said last week copper and bonds are the key to this market and copper broke out and gave a strong buy signal early last week before stocks made there move higher. Bonds are now giving sell signals on my charts and with a close on friday below the low of the high bar of the TLT and /ZB bond futures we can see an allocation shift from bonds into equities furthering the risk asset rally into August.
Internals have been stronger lately and the advancers/decliners ratio will be key to watch this week if we expect any kind of pullback. I also watch the $NYMO McClellan and that is up at +80 which is getting pretty stretched into overbought territory. The higher this thing goes the better the odds of a market pullback coming so with it so high its hard to get extremely bullish short term but realize that any 1-2 day dips are buys.
Currencies- EUR/USD looks bullish again as it tries to break 1.30. If it does I think 1.3125 is logical first target. GBP/USD is back to its April highs at 1.55 and should at least stall here for a bit. It has had such a strong run off the 1.4226 low. AUD/USD is ripping higher again as it broke resistance last week and now is challenging 0.9030. This was the signal last week for commodities and AUD remains in a strong trend on the 4 hour chart this week. USD/JPY is hanging under 87 as the yen is still holding tough and everything here still looks like its going below 86. EUR/JPY looks bullish as it tries to break 114 to the upside. Has a nice long inverted H&S setup on the 4 hr chart.
Commodities- Oil is hanging in the high 70s and feels like it wants to break out above 80 but is def taking its time. Copper has continued to rally after breaking out last week and is now up at 3.23. A full 50% retracement of the correction from April. The easy money here has been made and should probably pullback between here and 3.30. Gold is struggling to fall below that 1180 level and if it is going to correct further towards to 1150 then it needs to break support here in the next day or two. Or else it can pop a bit maybe back to 1215. Bonds are looking bearish as they broke down with the stock rally last week and continue to look heavy breaking trendlines. I think t-bonds are going down to at least 125.
Buy the dips>> BIDU, AAPL, CREE, FCX, X, VMW, MELI, AKAM, HMIN, NENG, SHOO, CXO, RMBS, SKS
Sell the rips>> TLT, GLD
Monday, July 19, 2010
After Friday's selloff alot of indicators are in sell the rips mode intraday. However, I don't think this is the start of a new leg lower. Friday saw some very weak internals and if we can hold the 1050s with improving internals then maybe a higher low can be in place. I think 1050 is basically crucial support and that needs to hold or else the recent rally will have retraced more than 50%. The market could be setting up an inverted head and shoulders as I highlighted in the chart and above 1100 you gotta be bullish on this market. I think we do get above there just because thats the last thing the crowd is thinking about and the world is bearish. We are in the middle of the quiet summer months and seasonality tends to favor the bulls and low volatility into August.
The keys to this market are copper and bonds. The bond market has been rallying for the past 3 months as money comes out of risky assets like stocks and floods into safe havens such as treasuries, gold, and cash. The bonds seem to be completing the 5th wave of the rally and could be topping out for now. If bonds show weakness early this week this is a nice signal that stocks can rally. The other part of the safe haven trade, gold, has already broken down and looks bearish like I have been saying.
Currencies- The EUR hit 1.30 and has since slightly backed off but nothing says this leg up is over yet. Besides the fact that GBP is retracing off its highs at 1.5471 and back down to 1.52 today. GBP has been a decent leader for the EUR so this may infact be worth watching. The weekly EUR is still bullish but getting into some tough resistance. At the least expect a consolidation to form soon. USD/JPY looks horrific and should fall further to new multi-year lows, which means yen is getting stronger. AUD got super close to the 0.89 I mentioned last week and seems to be having trouble up here. It's back to its 50 day ema and bouncing but if it fails to hold then watch out below for all commodities.
Commodities- Gold is breaking down out of last week's bear flag and seems like its headed for a 50% retrace of the spring rally back to 1155. Below that the 61.8% fib sits at roughly 1129. I can see a flush coming here. Copper is looking heavy and if it breaks 2.90 then it will break the symmetrical triangle its been in for weeks. Oil still stuck in no man's land. Daily chart looks like it could be a H&S or a cup and handle so will need to watch for confirmed break of 80 to get bullish. Otherwise its chop city.
Buy the dips>> NFLX, BIDU, MELI, FFIV, SAM, WPZ, TBT, NTAP, CTSH, GMCR
Sell the rips>> GLD, NEM, CME, DE
Monday, July 12, 2010
This week has one word to it. Earnings. AA and INTC kick off the action and then GOOG, GE, C, and BAC finish the week. We rallied into earnings week as the market had moved too much in anticipation of bad earnings. This probably leaves the door open still for a surprise the downside as the S&P has rallied about 75 points in one week. I think the most bullish thing the market can do this week is actually pullback to 1050 and hold as a higher low. That would be the first higher low in ages and could show us that the market is stuck in the 1000-1100 range for the time being. Or we rally up to 1130 and fail again with a double top and then consolidate sideways thru July and August. Whatever happens I think we have probably entered rangebound summer time trading, barring any crazy news of course.
The 1085 level represents the 50 day ema and also is price resistance. The 200 day ema is at 1095 and the 1095-1100 zone is site of the downtrend line from the top in late April. I think we see some decent consolidation before we attempt to break any of these levels. However, if we do get a close above that 1095 then you have to be open to the possibility of much higher prices thru earnings season since the first week of earnings reactions usually guide the market for the coming weeks.
Sentiment was so stretched to the downside before last week's bounce as the bull and bears survey from AAII returned only 21% of pollsters bullish. This is a low mark for the poll since last July 2009. I also keep hearing people compare this head and shoulders to the one in July of last year. They are not similar imo. This one is much larger in duration and has formed AFTER 5 waves up completed. I do think we have probably seen the highs for the year but don't underestimate this market's will (or the Fed's will) to push prices up into the November election time period one more time.
Currencies- The EUR is getting closer to the 1.30 area and is probably very close to being a good sell up here. I think closer to 1.29 is a good place to start lookin for weakness and for it to roll back over. DX is in a pretty orderly pullback and that actually looks more bullish to me once the downtrend is broken on the daily. USD/JPY looks like its bear flagging on the daily and if it drops out of the flag it should head to new lows. A strong yen would also probably pressure stocks lower. EUR/JPY is consolidating nicely and should test the 113 level this week which is the 50 day and heavy resistance. AUD and CAD are looking bullish once again and AUD could see 0.89 this week if it continues.
Commodities- IF AUD does pop then oil and copper should hold a bid but their charts arent terribly bullish as I have been saying for weeks. Oil is pretty much trapped in a range between 69-79. Copper is consolidating very nicely near 3.00 and could go either way. It needs to break and hold 3.13 for any rally of size to begin. Below 2.90 its ugly and should put pressure on the stock market. Finally, gold is interesting here because its not really bouncing back from that selloff and it seems like it wants much lower prices. I think the pattern here is bearish and should see 1155 soon on the next leg with a potential target down at 1120 in the coming weeks.
Buy the dips>> GOOG, AAPL, NFLX, CMI, AAP, GAME, UNP
Sell the rips>> GLD, BUCY, URBN, RL, SPG, GOLD
Tuesday, July 6, 2010
This week is a shortened week with light economic data and thus should be fairly low volume and potentially lower volatility. The reason I say potentially is because this market is pretty much still on thin ice and flirting with new lows everyday. We have not seen a capitulation bottom yet and until we see that flush of selling action with volume and a intraday reversal back to positive territory I will be expecting the downside. I still see us getting back to the 980 level shortly. The overnight lows on the futures brought us down to 1002 until they pushed the ES clear back up to 1038.50 this morning. This is likely nothing more than a snapback rally and guess where it stopped. Just under 1040. That massive resistance which will be tough to crack for now.
Earnings starting next week should be the next catalyst for the market to do its thing. I would think if we sell into the rest of the week then we could see a slight bounce into the first week of earnings season because the worst case scenario would be priced in.
Currencies- The EUR is seeing the bounce I have been looking for the last few weeks and we have got to 1.266 today. I think the easy money of this bounce has been made and now it should be more of a grind. I think the highest it goes from here is 1.30 and that would be a stretch in the short term. The USD/JPY is the weakest looking chart and I think the yen continues to rally and this pair should break down under 87 soon. This pair and the EUR/JPY cross shows risk appetite and they have both stabilized but not really rallying to the upside. IF EUR/JPY gets over 111 the market could stabilize further and fear might dissipate. The AUD is recovering back above 0.85 after finding a double bottom support level above 0.83 overnight. This is bullish short term for the commodities.
Commodities- As such, the oil and copper market is rallying today off the dollar weakness. I'm not really bullish here but it was overdue for a dead cat bounce. Oil has a serious risk of losing the 72 support level this week and falling further to 67. Copper support comes in at 2.90 and needs to hold if the stock market has any chance this week of recovery. Gold imploded last week as I had said it wanted to after failing to break out of 1266. I think gold could retest the 1175 level next.
Buy the dips>> AAPL, GMCR, SAP, BHI, CREE
Sell the rips>> AMZN, PCLN, GOOG, QCOM, ICE, POT, CLF
Monday, June 28, 2010
There are alot more bullish short term patterns in the markets than most people think right now and that's why I have a upside bias for the week. The move higher in copper last week was the key imo and I think copper should lead us higher this week as it broke out above 3 bucks. Also, the EUR/USD is hammering out a nice inverted H&S on the 4 hour chart. The dollar on the opposite side looks to be forming a H&S top short term and could be the catalyst to get commodities bid higher into July and the markets grinding back higher to the 1130 area as a first target.
The resistance above remains the same as last week but now we have a few gaps on each side of the current market. In the $ES futures we have a unfilled gap down at 1055 and also up at 1087. I think the upside gap here is likely to fill this week. I mark down all open gaps on my ES chart as they almost always come back into play and act as a magnet for the market price. Above 1110 I will get even more bullish as that is key resistance and should propel us into the 1140s. On the downside I think we hold the support levels for now until later in the summer but if for some reason we test 1040 again look for a failure and large selloff to own puts for. For now I think the market goes slightly higher.
Sentiment is still tilted to the fear side and this is what I think could unwind the bearish shorts into buyers as they realize the market can't make new lows with every new pieces of bad news hitting the wire lately. Traders are now basically waiting around for earnings season to start in mid July and the market is likely not going to take a deep dive before we hear about earnings from companies, which I think are bound to be negative.
Currencies- EUR is forming that inverted H&S and needs to break 1.25 for a confirmation breakout move to 1.28 and then 1.30. Critical support in the DX is at 85.50 and if that breaks then the dollar index should fall fast down to 83. GBP has been rallying for weeks now and is up about 900 pips since it started a month ago. Impressive move there and I think it could test 1.53 next. The USD/CHF has had an amazing move down and has met support at 1.09 so downside is probably limited here for now. Maybe a bounce back to 1.11 before any continued move. USD/JPY is back down to 89 as the yen gets stronger and this pair is just off recent lows at 88 which was met during the flash crash. Could go either way here longer term it look like it wants to bottom here in the upper 80s on the weekly chart but a break of lows at 84.8 could tell otherwise.
Commodities- Copper is the leader and what I am watching this week. It tested 3.10 after breaking the inverted H&S pattern and looks ready to go to 3.25. Oil is pulling off that 79 level once again today but still looks strong and is likely to test 82 on the upside this week as the next level of resistance on the charts. Gold is being very tricky lately as it keeps on making new highs and then pulling sharply off them almost instantly. Last week it hit 1266 and then closed lower near 1240. Today it rallied in the morning to 1263, a few bucks within that high and then sold off over 20 bucks back to 1239 where it is now. This is not the way a bullish trend should act. If gold continues this pattern this week be careful on the long side because it could be telling us that an important top is just weeks away.
Buy the dips>> BIDU, FCX, NFLX, OXY, AKAM, FFIV, TIE, SFLY, NENG, CMG, CRM
Sell the rips>> AMZN, GOOG, GRMN, QCOM
Sunday, June 27, 2010
The first chart is from 2007 and shows the March 2007 correction was almost exactly the same in size and duration 13 days as the January 2010 correction in the SPX, which is shown in the second chart. The recovery bounce off this correction in 2007 was a melt up straight higher, the same way our Feb-April melt up played out. Both of these rallies lasted just under 3 months in time and extended at least 161.8% higher beyond the correction to make new highs.
This correction also saw the break of the 200 day ema and lots of folks got bearish when that level broke back in 2007. Of course it was the right move long term but short term it provided for a bear trap in which the shorts got squeezed as the market rebounded into the fall of 2007 and eventually made new highs at 1576 before rolling back over and starting the bear market in early 08. This is the same feeling and behavior the current market is showing as the correction in May saw a break of the 200 day ema and it has stabilized enough to bounce back but has remained volatile.
You see from the summer of 2007 it took a little bit of time backing and filling before we saw the rally to new highs. This is kind of what we are seeing right now in the market as the SPX bounced back to 1130 and then sold off to 1070. Since we made price lows we have traded above those lows for about 22 trading days. The rally in later summer 07 lasted 39 trading days off the low in August and eventual high in October. So if you are a believer in history repeating itself then we could grind up for another 17 days or so before a similar fate for the stock market could be dealt, that being an important high being reached. That timing could come in around mid July.
Fundamentally speaking, the markets topping action in 2007 was as a result of fear of the unwinding of the credit crisis and eventual defaulting of debt by several large banks. The current fear of 2010 in the market is over the unwinding of the sovereign debt crisis in Europe and potential global contagion that sees entire countries defaulting on their debt. It's a very similar and real fear.
The similarities of the SPX in 2007 and 2010 are amazingly glaring so whatever you believe is headed our way you cannot ignore the price action as it is the most unbiased indicator of all aggregate supply and demand in the markets between participants.
Monday, June 21, 2010
The market is gapping up big on Sunday night and the EUR is rallying towards 1.25. The ES finished last week near the 1110 level as options expiration kept us grinding up all week. The market is bound to have a nice week as we enter the final days of June and the 2nd quarter window dressing comes in. This is why I have maintained a bullish bias for the markets while everyone was so overly bearish this month.
We are retracing a good portion of the selloff so far. The 50% retracement of the recent correction stands at 1136 and we are trading 1126 as I type. We are very likely to see the 1140s this week and is basically my first target of resistance before any kind of pullback. The 61.8% retracement is another area I'm watching with this rally in the next several weeks. That level is 1148 on the ES and about 115 on the SPY. It signifies monster resistance and I think the market will have major trouble getting above it, at least on the first attempt. Above that there is actually an unfilled GAP on the chart from mid May and that mark is about 115.44 on the SPY. That would be my ultimate target on the upside before I start looking for weakness.
We are entering the summer doldrums and this is a time of low volatility and grinding markets with low volume. I could see this market actually grind up or sideways well into July and then maybe we see some kind of correction later in August or early September. On the downside crucial support is at 1110 and 1093.
Currencies- The EUR was up big overnight and has now turned negative back towards 1.23. I think the EUR is still stabilizing and should grind higher in the coming weeks as the relief rally is here. The other foreign currencies from Europe are looking good on a swing basis. The CHF (Swissy) looks better than the others and I think USD/CHF can see 1.08 soon. GBP has retraced 50% of the selloff from late April and unless it can get over 1.50 then it should fall back towards 1.44. Aussie and CAD look strong as AUD has rallied back to 0.88 which is tough resistance. I would not be surprised to see a small pullback to the 0.855 level this week on this and that could put some pressure on the commodities.
Commodities- Crude at nearly 79 bucks seems a bit overdone on the upside, coming from a low of 67 last month. I expect a pullback here back to 75 at least and if the market overall gets weaker and dollar index is storng then oil can easily retest that 67 low. Everyone seems to be so bullish of oil and I am confused because its at the same price it was back in October. The daily chart just looks like on large rollling top pattern to me and if copper is leading the market and other industrial commodities then the weakness there should translate over to crude oil. Copper below 3.20 is bearish and below 2.95 even more bearish. Finally, gold is the most bullish chart in town and I think we see 1300 on gold within a month or so but today it is down pretty good after hitting new highs at 1266. That could pull it back short term to the 1220 level at least. Below that 1200 is your next level of support on gold.
Buy the dips>> WYNN, AAPL, BIDU, SGG, SPG, CRM, FFIV, AKAM, NFLX, CMG, ALK
Sell the rips>> FCX, VXX, ARW, WDC, DSX, WFC, EAT, JCP
Monday, June 14, 2010
This week is triple witching options expiration and that is historically a positive week for the markets with about 71% of the last 17 occasions being in the green. Also last week we ended the week on a nice push higher into the weekend as shorts covered some positions. The markets are facing some overhead resistance near the 1095-1105 zone that we saw right before the jobs report slammed us a week ago.
With only a few weeks left to go in the 2nd quarter and June, we could see a bit of window dressing as managers buy the names that have been working throughout this correction. I think if we close above that 1105 level then we should see some continued decreasing volatility and more upside that could eventually lead us up to that 1150 resistance and form an interesting longer term head and shoulders top in the SPX.
Charts are starting to look more constructive than they have in the past month and strong individual names in the tech sector are my favorites this week. I still don't really like commodity stocks or energy related names. We could get a rebound rally in some of these beaten down oil stocks but I'd rather wait for the bounce and short it on a swing or intermediate term basis.
Currencies- The EUR/USD short covering has begun after hitting a low of 1.1876 last week it is now challenging 1.23 on Monday and I think has a clear path to 1.25 short term. This is going lower long term but for the next month or so can see a nice squeeze perhaps even up to 1.30 without much trouble. This should maintain the current levels in the stock market as well. EUR/JPY is a measure of risk appetite that is also bouncing back as fear comes off the table. EUR/JPY breaking above 113.5 could send it to the 50 day at 116.25. Commodity currencies are back with strength and AUD has made quite a move higher since last week. From 0.81 to 0.8666 in one week. That is an amazing move of 566 pips and has pushed oil and copper prices higher since the bottom last week. I am thinking the majority of the move has been made as the AUD is slamming into the 50 day ema at 0.87 and could actually retrace back to 0.85 before seeing a new leg higher to 0.89.
Commodities- As I said the price of oil and copper was helped by the huge move up in AUD/USD. Crude made it back to 75.50, just shy of the 50 day ema. I think odds favor a pullback or sideways move in crude this week. Perhaps a range between 68-76 is taking hold for now. Copper is still technically downtrending the past few months after topping at 3.68 and the 3.00 mark is a big level that copper is now retesting. The resistance is tough but if it breaks it could easily see 3.15 short term. Gold is pulling back to 1220 this morning and really has not traded well since retesting the highs at 1250 last week. I think gold is starting a sideways trading range into summer time.
Buy the dips>> CREE, NFLX, CMI, FXF, PANL, NENG, CMC, WYNN, BIDU, GMCR, VMW
Sell the rips>> BP, GS, GOOG, JEC, QCOM
Monday, June 7, 2010
This week the big level in the SPX I am watching is 1070. This is make or break week for the market. If we can sustain a few days of buying above 1070 then the potential for a short squeeze rally exists into June option expiration--which by the way is next friday already. As for levels on the upside I think 1100 could be the first stop on any sort of strength. Above that resistance is all over the place and 1125, the site of the 50 day ema, would be a logical place for the market to hit the wall. As for if 1070 breaks down then all bets are off and we could see a thrusty move down to 1020 to set up a potential bear trap below the obvious 1040 low that everyone is watching. I do have downside targets of 950 for the next major leg down that should start a bear market and make officially 20% down from the top. However, I do not think we see this major decline in June as the odds are better to see a snapback of some sort to get folks back on the bullish train right before the cake hits the fan later in the summer.
This market is still volatile and that is shown by the 5th straight week that the VIX has closed above 30. That is just an amazing statistic that would have seemed impossible just a few short months ago when VIX was hanging around in the high teen's and daily ranges on the Dow would not exceed 50-60 points. Now we are seeing VIX futures price in a 30 VIX all the way out to October, which is telling us that this recent volatile stretch is not being seen as a blip and should continue into the 2nd half of the year.
Currencies- The dollar index broke out to new highs last Friday off the back of the ugly jobs report that sent stocks lower and the EUR/USD to new lows under 1.20. The dollar remains the strong currency out there but now has gotten strong against the Aussie and Canadian dollars, not just the European currencies. That is a troubling sign longer term as AUD and CAD have been the fuel to the commodity rallies this past year. This could be telling us that market is predicting lower commodity prices going forward. EUR hit a low of 1.1876 overnight and could easily see 1.18 this week. GBP looks even more dicey on the downside if it cannot hold current levels near 1.44. First downside target on GBP would be 1.41 and 1.3950 afterwards. On the upside GBP may retest 1.47 but there is alot of resistance there. AUD and CAD look heavy but are overdue for some basing or even a bounce. AUD needs to hold 0.8075 or else copper and oil will get hit harder.
Commodities- Copper got crushed last week as it broke below 3 and friday hit new lows on the year under 2.81. I think copper is in a longer term topping pattern as China slows but shorter term it is overdone and could start to bounce back this week between 2.66-2.70. Crude oil is fighting the 70 level this morning and has a good shot of breaking down into the mid 60s or even down to 62.50 eventually. Gold and silver look strong this morning and gold should retest the 1250 highs from last month. I do think it now should breakout of 1250 and run higher because the momentum is just so strong and I have a fresh buy signal on the daily chart of gold. First target is 1270 and then 1295.
Buy the dips>> BIDU, SNDK, BBG, NGD, HL, GOLD, MA, DLR, ICE
Sell the rips>> AMZN, GOOG, CREE, FCX, RTP, ANR, MS, HIG
Monday, May 31, 2010
Going into this holiday shortened week I think the first few days are important and could lead the way for the next few weeks. Meaning that if we struggle to get back above 1110-1120 in the early part of this week then we could be headed lower to take out the 'obvious' double bottom lows near 1040. Friday ended on a weak note as the Spain downgrade stopped the market rally cold. However, I think it's impressive that the EUR didn't completely collapse off this news. That could tell us that the EUR might want to pop back to the 1.25 area this week. If the market does get back over 1100 I think resistance will be tough to break thru so upside is probably limited and I would be exiting longs anywhere between 1110-1130 and probably even reloading on some shorts as I think the market could roll over after testing the downtrending 21 and 50 day ema's. I just don't think we get back to the April highs for awhile.
Antother thing to remember is that June 1st is here and long only fund manager's could prop this market up as the first day of the month generally sees large mutual fund inflows of cash. If we see that then I would be taking an opportunity to lighten up on longs into it. There is some ISM and jobs data coming this week as the May unemployment report is released on Friday so that will be the focus this week.
Currencies- The EUR key level of support is 1.215 and that needs to hold or else we will see a quick move to 1.20 followed by 1.1820 based on fib targets of the last retracement. I think playing any bounce could be better done in the GBP as that currency can make it back to 1.48 on a nice bounce. AUD and CAD are still in trouble on the daily but could continue to rally off last week's lows. AUD can bounce back to 0.86 or 0.87 on strength this week. The USD/JPY is holding the 90 level so far and still has work to do until it gets back above resistance at 92. USD/CHF has been super strong as the markets sold off in May this pair climbed more than 1000 pips. It could now retrace back to the 21ema near 1.135.
Commodities- The bounce back in the AUD last week gave oil a nice oversold rally back to the 75 level. I think crude is ready to roll back over this week and we can potentially see a hard selloff if the Aussie dollar confirms the move lower in commodities first. Copper is in the same boat and unless it can break above the 3.25 level then I see it selling off further back to the May lows at least. Gold is looking more bullish and a move back to 1250 is possible but I tend to think gold is near the top side of a new trading range going into the summer months so I am not too interested in it here.
Buy the dips>> COST, VCI, SNDK, NFLX, CRM, SHLD, MON, NENG
Sell the rips>> GOOG, AMZN, RIMM, GMCR, WYNN, TIF, RINO, FCX, BUCY
Monday, May 24, 2010
This week the market should stabilize and volatility will probably contract as the SPX bounces back from very oversold conditions. We made it down to 1055 last Friday before closing near 1085. There are 3, count em, 3 upside gaps in the SPY that are unfilled. These gaps sit at SPY 111.76, 115.99, and 120.35. I think the first two will likely fill on this next relief rally that should begin this week. The market acts like a magnet towards unfilled gaps in the SPX and it should be no different this time. I have an upside bias initially this week in the market and think the 1110 area is a first target of resistance. Above that I see the possibility of 1155 gap being filled.
The correction we have seen in the SPX has been about 13% so far and I think for the time being that is enough to get some value buyers out there and shorts to cover as the fear level got to a palpable level. The sentiment came from an overly bullish angle just a few weeks back to a very sharp reversal into bearish sentiment as the highest put/call ratios were recorded Thursday is some time. Also on Thursday the internals in the market were just about as negative as I've ever seen them. Out of 500 stocks in the SPX, only 3 of them were green. Down volume on the NYSE was 99%.
Going forward the SPX should establish a trading range as we enter the summer doldrums in June-July. This week is the last week of May and next Monday is a holiday so you will usually see reversals of trend during the week prior to a 3 day weekend in the markets. What sectors are best for an oversold bounce? Well, probably energy and materials based on their high betas alone and the potential rebound of the AUD and CAD dollars off support. Also tech stocks look decent for a bounce play this week and banks are overdue as well even though I am not a fan of financials overall.
Currencies- The EUR has stabilized and as long as it holds the 1.23 level it can start to retrace higher and maybe you see some shorts cover into the 1.27-1.28 zone. Like I said above the AUD and CAD dollars have gotten smashed recently as the risk trade came off and traders flock to the JPY. The AUD has a decent chance of bouncing higher this week back to the 0.85 level. Same deal with CAD as it should retrace back to 1.04-1.05 this week. The longer term weekly charts in these commodity currencies look a bit damaged (Aussie more so) and that tells me that they could be in for more downside into summer time and that should put more pressure on commodities like oil and copper. JPY is holding 90 and is due to bounce back to the 91-92 area as long as fear doesn't explode once again short term. The yen is a safe haven and that's why it had such a strong bid the last few weeks as people bought yen and sold EUR.
Commodities- As I mentioned the energy and materials sector is due for snapback rally and I think we will see that this week but going forward in the next few months this sector can see more weakness if the AUD stays under pressure. I think oil can bounce back to the mid 70s before seeing much resistance and copper can come back to 3.20. Gold has pulled back from its insanely overbought state last few weeks and met support at the 1175 area. I think gold quiets down for a while and should just consolidate for a few weeks.
Buy the dips>> BIDU, COP, AAPL, INTC, TBT, NFLX, CLF, AMCC, NTRI, MCD
Sell the rips>> AMZN, RIMM, SPG, POT, FLR, BEN
Sunday, May 23, 2010
It's always good to take a step back and look at the forest from the trees when analyzing the stock market. In other words, the longer term timeframe dictates the shorter term movements. The market has been extremely volatile the past month as traders and investors realize that things are in fact, not all right in the world we live in. From countries on the verge of defaulting on their debt in Europe as a result of years of reckless spending and declining productivity to sudden fears of a major slowdown in the global growth leader, China. Financial regulatory reform. A devastating oil spill in the Gulf sure to bring debates against deep water drilling and big oil. Higher taxes courtesy of the Obama administration. And stubbornly high unemployment.
Since the S&P 500 bottomed in March of 09 at 666 the bull market run has taken us up to 1219 as of late April, a move of 83% with other sectors seeing even higher returns during this time. In just the last 4 weeks the SPX has fallen back to 1055, a correction of over 13%. There has been a lot of technical damage to the chart and this is evident across most sectors, especially financials and materials. The technicals have been warning of a correction of this size for awhile now and looking at the longer term weekly charts I think they are starting to point towards a topping pattern that is developing over the course of several months and should drive us into another bear market by the start of Fall 2010, if not sooner. The highs we saw in April at 1219 have a good shot of holding as the highs for the year and if not then only slightly newer highs should be seen and that will be an outstanding selling opportunity before the cake hits the fan.
If you look at the charts shown I believe we are forming a bearish head and shoulders pattern that likely just formed the head and we should see a weak right shoulder form during the next few months going into summertime. The key to this pattern is that the next few months form a weak grind back up similar to March-May of 2008 and not surpass much more than 1180-1200 on the SPX. If we move up with strength and even make new highs for the year then odds are that we simply just formed the left shoulder of this topping formation and the head will take longer and top higher than the 1219 high. Nevertheless I do think the upside for the remainder of 2010 is limited and if we break the 1044 lows from Feb then we should likely see a steep selloff down to 943 which marks the 50% retracement of the entire bull run from March 09. Below that the 61.8% retracement shown in the chart is near the July 09 lows at 875 and would be the ultimate target by the end of 2010. This is not as crazy as it sounds and I fully expect that level to be hit if we do indeed breakdown from 1025.
Zooming in closer on the daily chart I have marked the neckline of the head and shoulders top I believe we are forming and that measured move from the neckline of roughly 1060 to the high of 1219 is about 160 points in the SPX, which brings us to a target of roughly 900. This massive selloff would bring us back to the July lows where we have an unfilled gap at 906 just waiting like a magnet to be filled. I'm a huge believer that all gaps eventually get filled in the SPX, even if sometimes it takes a year. This would be a logical area to see the market trade down to once support is broken at 1025.
This is a longer term 6 month view and I do think that over the next few weeks and months the market actually will rally and begin to start looking more positive and you'll probably even hear it from the media. But underneath the hood I think the health of the market will be deteriorating and fewer stocks and sectors will be making new highs and participating in the potential upside. By the end of summer or early fall I think it will be clear that stocks are in a bear market.
Monday, May 17, 2010
This week the market is continuing to sell off as almost the entire gap up from last monday is given back. The gap I was looking for in the /ES sits at 1107.75 and we have come within 5 points of that this morning. The slide from 1172 last Thursday has been furious but there was also very little reason we were up last week at all. Oversold bounce and that was completed in three days. That is not bullish. And it looks like this selloff wants to go further than three days so the gap fill is the first target then the 1100 area is home to the 200 day ema which everyone will be expecting to hold. So I wouldn't be surprised if we break it for a day and then suck in a lot of bears and shorts just to see it bounce back up and create a short squeeze.
Things are not good and fear and volatility is reflecting that properly but still I believe we are entering a stretch of sideways trading that should last thru the summer. This could be a wide range though. Measures of risk are still pointing to more downside and the best measures out there have been the EUR/JPY and AUD/JPY as well as the dollar index. The flight to safety is continuing as all industrial commodities get thrown over the cliff. Copper is a leading indicator or the market and it has not stopped selling today which indicates the SPX is not close to bottoming.
Another problem is sentiment. The longer term sentiment has shifted in the public eye with the stock market. Retail Joe has lost trust in the mechanics of the market and the oil spill doesn't help. Just as the recovery was starting to become believable in the eyes of the middle class the market starts to care about the Euro problems. Longer term this doesn't favor terribly higher prices in the market later this year, if at all. Short term however the sentiment is stretching to the fear side as the VIX is at 34 and I would expect that to grind lower into the options expiration this week.
Currencies- It seems that everyone is talking EUR and even is short the EUR and when it feels like this then you gotta be prepared for a short covering rally. One problem. A country defaulting and riots in the streets overshadow that and can take a move much farther than you think. The EUR really doesnt have a lot of support below 1.23 until 1.18 and I would be surprised if we don't see some kind of stabilization at least this week. AUD and CAD look very weak as they have corrected with the price of commodities and show little signs of being ready to bounce yet. AUD has support at .8650 so I would look for that to hold this week.
Commodities- Copper is down 7% today alone and now trading at 2.92, well off the highs over 3.50. This could actually get down to the Feb low of 2.81 or lower if the industrial fears continue and China growth slows. Crude oil is down 20% from the high a few weeks ago and trading with a 69 handle this morning. This chart looks terrible and I think could even retrace to the mid 60s.
Buy the dips>> AKAM, COST, CREE
Sell the rips>> FCX, FSLR, WYNN, JOYG, CAT, CCJ, GOOG, HBC, RIMM
Monday, May 10, 2010
Starting this week we have a EURO bailout on our hands that has sent the markets gapping up by about 400 points in the Dow. The ES futures closed friday at 1107.50 and that creates a downside target to fill the gap once it starts to move lower. Also we still have a gap to fill above here from last week at 1198.50. Which gap gets filled first is tough to say so I will let the market tell me but all gaps do get filled in the S&Ps so mark these levels down and watch them.
Our markets are lucky to see a bailout plan for the Euro so drastic in the short term because I think this could have been a very ugly week if something wasn't done. At the same time this is just a short term fix to a long term problem that only buys the ECB more time to come up with something more meaningful. I would not be surprised to see our markets end the week lower from where we are today. It's hard to look to the long side after the market snapped back and gapped higher to retest the 1150 level that was so crucial on the recent move lower. I would expect resistance to take over between 1150-1170 on the SPX.
I actually think we could settle into a range between 1100-1150 for the next few weeks perhaps. But am starting to see signs the markets eventually will want to retest the lows from last week and even potentially take them out to the downside in the coming month or two. This week will tell us alot about whether the market still wants to head higher in the longer term or if the rapid decline is telling us that the fundamentals do not support higher stock prices going forward into the 2nd half of 2010. Remember the charts ALWAYS foretell the fundamentals.
Currencies- The moves in the Euro and other related currencies have been crazy the past few days and this morning is no different. The EUR hit a low last Thursday of 1.2518 and open this morning at 1.2919 before rallying up to 1.31 and then now selling off below 1.28. These are huge moves. I can't see the EUR heading too much higher from here as it got its initial recovery rally off the bailout. Ultimately I do see the EUR going lower and making new lows below 1.25. Maybe much lower. Also the potential unwind of the carry trade showed up last week as the EUR/JPY and AUD/JPY got the smack down and this showed signs of occurring way before the so called "glitch" in the system. Risk appetite was put off the table for safe haven trades liek gold and US bonds. I see this continuing into the next week at least and it could be warning us of whats coming down the road still ahead of us.
Commodities- Like I said above the risk trade was off last week and after a snapback early this week we could see a continued sell side action in things like copper and oil. Crude had a huge reversal last week as it fell more than 10 dollars to close the week near 75. If this area breaks you will see 70 in crude and potentially even lower as there is plenty of downside since most everyone has been bullish on oil this year and this has room to unwind lower. My short term view on oil would change above about 82. As for gold I still love it long but it has ran quite a bit and could be ready to pull back off the 1215 area. It almost got to 1225 high from November so it may still retest that level but I would think it would struggle to break out to new highs after gold just rallied nearly 100 bucks. Plus, the early summer season is a historically weak time for gold in which it usually pulls back off the spring highs. I do think later this year gold is poised to shoot higher and tag 1350 or higher.
Buy the dips>> AAPL, ICE, SBUX, GLD, COP
Sell the rips>> FCX, HAL, MS, QCOM, APA, ANR, ISRG, HES
Monday, May 3, 2010
Going into May the market seems a little toppy and could retrace back down to that 1150 area I have mentioned. At the same time if it just consolidates between 1170-1210 then it could just be resting for its next leg higher. I do not think this market has topped out for the year because the internals are just too strong to justify that scenario. While we could see that minor correction in May it would probably just be the start of some range bound trading going into summer. There continues to be sector rotation that allows the broad market to stay afloat at these levels as individual sectors take turns moving higher week after week.
I think the next few weeks could see a nice volatile move in either direction and I tend to think it could be higher as a possible blowoff top move comes into play. After this we should see a correction that lasts more than a few days but so far it seems each pullback cannot last for more than 2 trading days. Which is bullish. Remember that volatility can and does increase in rallying markets that enter a blowoff type move where everyone wants in.
The sentiment is still stretched a bit in the short term surveys that measure bulls and bears. The AAII survey showed only 18% bearish investors which could show a short term top. Overall in the longer term I think we have not seen the euphoria needed to signal the top of a bull market. Still too many top callers and skeptics out there and that defines the middle stages of a bull market.
Commodities- The oil patch is starting to look good as long as you are not exposed to the oil spill in the Gulf. Ouch. Overall I still like the dip buying in crude oil and think it still has a target of 92 by Memorial Day. Commodities in general look good minus the copper and industrial metals that are pulling back. Gold is a rockstar lately and I see 1200 this week on gold. That breakout of 1140 that I mentioned a few weeks back was the signal.
Currencies- Euro is continuing to be a sell the rip candidate as the Greece trouble keeps weighing on the Euro. EUR is actually stabilizing on the daily and even though the momo is down I think a close above 1.34 may actually get some shorts to cover and you could see it base out at the least. However if it breaks down I see 1.30 quickly. GBP looks ready to rollover to retest the lows near 1.48 as long as it stays below 1.53, the site of the 21 ema. GBP has outperformed the EUR lately so that could continue as well if GBP gets back over 1.53. AUD has been consolidating nicely above 0.91 for weeks and I think it could go either way here but I lean towards an upside breakout of 0.93. The reason I have some caution about AUD is because the other commodity currency the CAD is showing signs of reversing and falling against the dollar. A breakout above 1.02 could show a short term bottom in the USD/CAD. This along with strength in the JPY could show risk appetite coming off and stocks pulling back.
Buy the dips>> OXY, BRY, WFT, KEY, RF, ENP, DNR, GLD, UXG, POT, CRM
Sell the rips>> NTRS, STT, ACH, GOOG, HBC, DB
Monday, April 26, 2010
Entering the last week of April the market is in full melt up mode and I see it continuing up thru 1230 on the SPX and possibly 1250 soon after. Nothing seems to stop this bid in the markets and its becoming a chase for performance once again. People are starting to chase this market higher as it runs away from them and adding to that the shorts have to cover every time new highs are made because they are proven wrong time and time again. This is how topping processes usually start out but they are processes and that's why calling tops is a foolish game whether your name is Elliot Wave or not. The trend is your friend.
I do expect the next month or so to be more of the same with a blowoff top of some sort coming in May that precedes a small correction by mid month. The volatility should increase in the blowoff move as it usually does as everyone tries to pile in to the mosh pit to experience the thrill. Until that happens we will see this continued grinding sort of melt up. Each dip has been bought whether it's been another Greece story or the GS saga. There are unreal single stock stories out there this year whether its AAPL, NFLX, CREE, or LVS. These names have seen amazing explosions in the last few months and the momo should continue.
While this may not be a huge surprise to you, the Goldman Sachs fraud charges seemed to shake retail investors' nerves, as last week's American Association of Individual Investors' poll revealed that the percentage of bullish investors dropped from 48% to 38%, and the bearish percentage jumped from 29% to 34%. This can extend the duration and magnitude of this bull run as emotion is not at the frothy levels it may have been before the GS scandal appeared.
Bottom line is that I know its hard to be thinking this market can go to SPX 1300 but weren't you thinking the same thing in late 2008 when the SPX was at 950 and saying no way we see 666. Well it happened. I never have many expectations in the market I just try to let the market tell me when it wants to move. The markets will ALWAYS overshoot value and where they 'should' be simply because markets are made of up of the aggregate emotions of all participants involved. Be rigid in your disciplines and flexible with your expectations.
Buy the dips>> APC, APL, GLD, OIH, RYL, ANR, BUCY, BYD, BA
Sell the rips>> RIMM, NTRS
Monday, April 19, 2010
After the GS bloodbath on friday I want to see how the market acts early on this week before I commit myself to much. Lots of stocks had a bit of technical damage on friday and that could take a few weeks of correcting and basing to erase. I will expect a bit of a bounce early this week but I think we have further downside to the point that we could correct 4-5% by the end of April. The goal for this week should be to either get hedged having some shorts to match your longs. Or just get flat and re-evaluate the market when it settles into a setup you can trade.
The SPX big support level below is 1150-1155 and I doubt we see that right away but we could be headed there in the interim if the market struggles this week to regain 1205 level. The main thing you gotta ask yourself is if you bought stocks a month ago would friday's selloff get you nervous enough to sell? How bout if you bought a week ago near 1200? Or Thursday? If these people bought and are now nervous then they could sell to get out and that will put some pressure on the markets.
Sentiment surveys are maintaining high levels of bullishness this week matching the levels of early January and mid August 09. This does make me a bit cautious as extreme bullishness on the AAII survey has marked short term tops many times. Much better than a VIX reading, or put/call ratio for timing imo. Magazine and newspaper headlines are emerging with optimism about this market's recent run higher. This is another sign in the short term things are overheated and need a rest or pullback. Longer term I'm not sure if we have reached the "euphoria" stage that most bull markets experience before they fizzle. We have seen "acceptance" of this bull market but will we see that final blowoff if we make a new leg higher in the coming months? We shall see.
Currencies- The dollar strength on friday was a flight to safety type of move and sellers came into risk currencies like the Aussie and euro. If the EUR has trouble this week above 1.35 it could move lower to test recent lows or even make new lows. It will important to watch the Aussie and CAD dollars early this week to see if they can recover some of the downside since friday because they lead the commodities like gold, copper, and oil. I still say that above 0.91 the Aussie is a strong currency and this could just be a pullback in a bull trend.
Commodities- The gold market got hit Friday after traders thought Paulson would have to liquadate his gold holdings (of which he owns plenty billion) to account for the coming redemptions that may hit as a result of his involvement in the GS fraud. Probably a big over-reaction but watch gold to see if it can get back over 1140. Oil needs to stay over 83-84 if it will continue higher. Still think crude can challenge 90 and break it in the coming weeks.
Buy the dips>> RIG, OXY, NOG, BZH, MCD
Sell the rips>> SOHU, LM, LFC, KALU, TLT, MFE
Monday, April 12, 2010
As for technicals the charts really just keep grinding up and taking there time. As much as you may think the market shoudn't go up, it relaly doesn't matter because it will do what it wants. And right now it wants to go up and the weekly and daily charts are saying so. I do think the rally has legs into early May where we may see a correction into early summer but we could rally alot between now and then. The SPX being above the 200 week ema is a big signal that we have a floor underneath us. I see 1225 as an interim spot of heavy resistance that should be the next target once we break 1200 which was roughly the July 08 low. Look how far we've come.
In the short term you gotta keep watching the transports (IYT) and Russell 2000 (RUT) as these are market leaders which should lead the SPX higher this week.
Currencies- The euro gapped up big with the GBP as the Greece debt concerns eased over the weekend. Euro now has a good shot of testing the 1.38 level from here as the dollar index pulls back to the 80 mark. Aussie gapped higher as well but completely gave it all back this morning as it traded back down to 0.925, more than 130 pips off the sunday night highs. I still like the Aussie to the long side going forward as long as it holds the 0.91 level. Weekly chart looks exceptionally strong here and I think this currency is the key to holding the stock market up as it influences where commodity prices go.
Commodities- Gold looks about as good as it gets. After consolidating for the past 3 months or so gold has broken out over 1140 to test the 1165 highs from Jan. If this level is held I don't see any reason why it wont go up and thru 1200 and it could happen fast. Copper is holding the recent breakout of 3.50 and I still see upside in copper above this level. Remember copper has been a fantastic leading indicator of the SPX in recent years. And right now it is showing no signs of slowing. Crude above 84 is still a buy and should head to 92 imo. Bonds popped back higher last week after the 10 year tagged 4% yield. I think this is temporary and bonds are in a major topping pattern.
Buy the dips>> VMC, PCX, DPZ, FCX, SU, APA, BP, BWLD, LVS, COP, RGLD, DRI, FLR
Sell the rips>> IMA, RIMM
Monday, April 5, 2010
This week the FOMC minutes are released on Tues. and there are some bond auctions that could influence the market as the 10 year bond is now approaching 4% as I have been saying it will for weeks. Bond prices are headed much lower in my opinion and this is only the beginning of the move. The play on any pullback is long TBT or short TLT. Also, Bernanke has a speech on Wed and the BoE and ECB rate decisions are on Thursday morning.
Currencies- The commodity currencies will be the ones to watch this week as we have the Aussie and Canadian dollars still very strong and near the upper part of their ranges. These pairs track and even lead the price of copper and oil sometimes. Last week we finally got a close above 84 for crude and above 3.45 for copper which means that they are in breakout mode and they look bullish going forward. The Aussie is at 0.92 and could see 0.94 next. CAD is basically at parity with the US dollar and showing no signs of stopping. The yen continues to be weak and the weekly chart shows a breakout of the USD against the yen which should continue for several weeks or months. Finally, the euro and pound have become the quiet names lately as they consolidate back up. Euro really has to take out 1.37 to the upside to reverse any kind of downside momo.
Commodities- Like I said above, oil and copper are breaking out and that is powering most energy sector stocks higher as they have lagged the last few months. Also gold and silver are bullish now that they have moved above some key levels. I think this trend may continue this week and if you see gold above 1140 then you can really see a nice move to the upside. Also, bonds are a sell the rip candidate imo.
Buy the dips>> RGLD, APA, SLB, LVS, MGM, FSLR, KLAC, PCLN, ANR, VMC
Sell the rips>> TLT, NTES
Monday, March 29, 2010
The SPX pulled back to the 8ema last week and seems to want to bounce off of it. Short term I think we can tag 1185 this week. We really have no choice but to be cautiously bullish above the 1150 level. Another thing to watch for will be whether the pullbacks last less than 4 days. So far they have. Those are normal pullbacks within a bull trend. I would not be surprised to see the jobs report mark some kind of an important short term to interim top going into April so be warned.
Currencies- The Euro bounced back a bit this morning to 1.35 and the GBP is back to 1.50. It still looks like this is a weak bounce within a bearish downtrend. I like the dollar and think the DXY is still headed higher after it reached my initial target of 82.50 last week. USD/JPY rallied hard last week reaching almost 93. The pair has based out for 6 months or more now and I think from looking at the weekly chart that we could have seen a major top on the yen and look for the dollar to appreciate towards 100/yen in the coming months. Aussie and CAD remain strong after pausing for a little bit to consolidate. Obey the trend there.
Commodities- Oil is still fighting the 82-83 level and I have really dont know what it wants to do. Either close above 84 to be bullish or under 79 to be bearish. Copper looks more bullish after just flagging out last week and now is challenging the 3.50 level which could very well signal a breakout to the upside. Gold and silver look strong once again as they just bounce around in these ranges lately. Until gold closes above 1140 I expect more rangebound trading.
Bonds- Interesting action in bonds last week. The 10 and 30 year sold off sharply and yields on the 10 year approached 3.9%. Any close above the 3.9 level signals a major long term shift in the bond market. I believe we are seeing the top in bond prices for the next decade if not longer. Yields will rise towards 7% in the coming years as more investors demand a higher return for the risk of holding our debt. This is my long term thought on the bonds and the way to play will be puts on TLT or calls on TBT if you cannot trade the futures. Short term the TLT is bouncing back a bit but any strength is made to sell.
Buy the dips>> TBT, BIDU, MGM, RF, NOG, FLR
Sell the rips>> CHL, LM, KALU