Monday, February 15, 2010

Weekly Outlook 2/15

Going into a shortened options expy week the SPX sits at 1075 and looks like it has a bit more room on the upside before any selling pressure settles in. The 21 day and 50 day ema's are above here and sit at 1089 and 1097 respectively. I think we have a decent shot of at least trying to tag that lower zone this week. If we fail early this week then the market will trade sharply lower to the 1060 mark into expiration friday where there is tons of put open interest at the 106 strike in SPY. Alternatively, options expy may simply allow stocks to grind up slowly into resistance without a reversal coming until after friday.

My overall intermediate outlook on stocks is that we attempt to fill the gap on the SPY up near 110 before rolling over and making new lows into early March where we bottom out and begin the next (and probably final) leg of the bull market into May-June, which may or may not be able to break the January highs before it fails.

Currencies- The Euro actually looks like it is trying to catch some support near the 1.36 level and it could just consolidate to form a bear flag at this area. There is no doubt that everything is being influenced by the movements in the EUR/USD and that should continue. Short term it looks like the dollar wants to retrace a bit and at the same time the Aussie and Canadian dollars could have a bit more upside this week that should keep a bid under commodities.

Commodities- The metals have bounced nicely since they dumped hard a few weeks ago. Gold actually looks stronger to me on the chart than copper does. Copper looks broken and retraced sharply off the 2.80 level back to 3.14 which is just beneath the 50 day ema on the futures and the sight of heavy resistance. I would be a seller of rallies in copper and a buyer of dips in gold as it has come back to some nice support to try to find a base. Crude oil looks bearish on the daily as well with the bounce back off 69.5 last week coming back up to the critical 75 level where we have a confluence of moving averages acting as resistance. This is because crude has spent a lot of the last 6 months in a trading range between about 68-82. With copper breaking down I think crude will be the next to follow so I am cautious on oil here and would rather be a seller of rips.

Overall, sentiment in the markets is at a bit of a middle ground since the Euro panic of a week ago. I would expect the SPX to chop around and grind for a little while this week before attempting to fill that gap overhead as mentioned and create a possible bull trap.

Buy the dips>> CY, SPG, M, COST, SHLD, F

Sell the rips>> HBC, HES, MRO, FWLT

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