Monday, March 1, 2010

Weekly Outlook 3/1

The first week of March is here and historically the markets see important lows made in the month of March. Will we retrace down to make that sort of low? That is the question. I still believe you should be cautious as there is very little upside potential imo. Banks have still been weak and even this morning are mixed or even selling off on a strong gap up. I think any sustainable rally needs the financials to be participating. The technicals do look very confusing on the major indices as I was checking out the charts yesterday. The larger formations in the Nasdaq and SPX are showing some head and shoulder patterns while the short term move has the potential to pop out of a bull flag and test the 1120 area, which remains very heavy resistance.

Data will drive the price action this week as we have manufacturing stats coming out as well as the all important jobs report on Friday.  Fed Beige Book is due out Wednesday and several central banks have interest rate decisions including the ECB, BoE, and BoC which will make it an active week for those respective currencies around the globe.

Currencies- The dollar looks like it still wants to push higher a bit more as the Euro just simply can't get anything going. There is alot more consensus building that the Euro is going to parity with the dollar in the long term and you know that consensus thinking is never something you want to be a part of unless you are in high school. The Euro has good support at the 1.35 level but if that breaks we should see 1.3250 fairly quickly. The GBP is getting whacked sunday night into monday and could be a leading indicator for the EUR going forward.

Commodities- Crude looks to test the 80 level again early this week but will it fail again? The more a level is tested the higher the odds are that it is broken. But oil still looks awfully toppy to me up here and I would expect a rejection at 80 again and a return to the mid to low 70s in the coming week or two. Copper gapped up 6% on sunday night after the Chile earthquake but is giving up much of its gains this morning as I type. Copper is definitely overextended up here and stocks like FCX have not came back as aggressively as the commodity itself and so that tells me to be cautious. Gold also is interesting because above 1120 or so it looks bullish technically speaking but a close under 1090 and its a clear sell signal.

Overall this week I am feeling very mixed on the indices as some are looking toppy and some are still showing some resiliency. I do think we should see a sharp move with conviction by the end of this week and that move should guide us for the next few weeks on a directional bias. I am leaning lower as long as we cannot clear the 1120s on the SPX.

Buy the dips>> RIMM, BIDU, EK, EOG, EAT, INCY

Sell the rips>> FCX, GOOG, HES, PDE, GS

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