Monday, February 8, 2010

Weekly Outlook 2/8

Last week unfolded just as expected as we got a head fake early on that stalled perfectly in the 1100 area on the SPX. Stocks then completely collapsed into the end of the week before reversing in the last two hours of the day on Friday with capitulatory type volume. In fact Friday volume on the SPY was the highest since last March when we bottomed. The volatility on Friday was truly spectacular. While the huge deficits and failing bond auction's in Europe are a real problem and have only just begun to show us pain; I think the reversal on Friday is a short term signal to play the long side side this week.

We bounced perfectly off the 200 day ema on the SPX near 1046 and closed up at 1066. Of course the 1080 level is huge resistance I think we at least test that this week if not try to fill the gap left from last week up near 1100 ish. However, I do have some suspect feelings about any reversal I see on a Friday. That's because they are rare. It did feel like a short term low being put in but what really matters is the confirmation day on Monday. We need to see Monday close above Friday's close for the reversal to matter to me.

The sovereign debt issues in Europe are just beginning to show its face globally and if you add China to the mix we could be staring a much larger Dubai situation in the face in the next 6-12 months. All I am saying is that the warning signs are here and it reminds us that we are still in bad shape globally. The Obama administration put a bandaid on it last year and now are boasting of the "improvement" in the economy we have seen. When in fact they are doing everything they should not be and more due to their poor understanding of how markets function. Anywho that's a discussion for a different day.

Sentiment is quickly bearish once again after being extremely bullish in early January. The American Association of Individual Investors weekly survey showed that less than 30% of those surveyed describe themselves as bullish on the market. This is the first time since November 2009 that the percentage of bulls fell below 30%. The percentage that describe themselves as bearish rose to 43%, also the highest since November 2009.

The dollar rally has been a big part of why stocks are fallen recently as the Euro specifically gets crushed. With the dollar index clearing 80 last week and the Euro hitting the 1.3550 area I think you get some kind of retracement near this level. This is one of the main reasons commodities are gotten slaughtered as well.

Last week we saw a complete liquidation of copper, gold, and crude oil. In that order. The did slightly rebound on Friday by end of day and you may see a similar retracement here as it seems lots of weak hands got taken out violently.

Bottom line, expect some kind of retracement rally in stocks this week but watch the 1080 level for the first sign of resistance and then 1100-1105 if this thing really gets going higher. On the flip side, if we get rejected and lose 1050 then the selling could get hardcore.

Buy the dips>> AMZN, RYL, EL, EAT, GLD

Sell the rips>> LFC, MRO, YUM, BCS, FCX


Barefoot Trader said...

Good analysis. I'm not buying dips in this environment and particularly not in GLD (watch the euro) or AMZN (going to fill the gap below).

Jason said...

Thank you. The buy the dips was just for a short term move as we have seen so far.

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