Monday, March 15, 2010

Weekly Outlook 3/15

The market had a pretty flat week as it got up to the 1150 resistance and looked like it struggled a bit on Friday as it opened at the highs and sold off. This week we should see a pullback off this obvious resistance and it could get back to 1120-1125. This is a very tricky market at this point because we are up almost 2 weeks in a row with out any interruption. That is very rare. You gotta think the rubber band is stretched too far. While I do think this could be a significant interim top going into the spring I can still see this market pushing up thru 1150 for another leg higher. But for the next few weeks I anticipate a pullback consolidation at the very least. If we lose 1120ish then the selling should intensify. There are still unfilled gaps in the ES down below at 1105ish.

This week we have some catalysts that could pick up the volatility. Fed day is tuesday and that is sure to get the markets moving. In the past fed days have marked tops and bottoms and I wouldn't be surprised to see the same short term reaction. Quad witching option expiration week is also here and that adds to market volatility as well. I think this is a very important week to watch transpire. For swing traders it makes sense to lighten up or sell longs up here and wait for a pullback to come and see if it holds.

Sentiment has picked up to the bullish side now as the AAII weekly survey showed 45% bulls, up from just 35% a week ago. Historically this is getting up into an overly optimistic level. Not extreme yet by any means but it could point to the recent rally being long in the tooth and overdone as these numbers are meant to be interpreted on a contrarian mindset.

Currencies- EUR/USD popped a bit on friday as stops got ran above the 1.37 level. It moved to nearly 1.38 overnight which is a 100 pip move. This week I think the euro can tag higher levels perhaps into the 1.39-1.40 area if it sustains some buying pressure above that recent consolidation. GBP/USD is forming a similar pattern to the euro just sitting between 1.49-1.52. Look for the top of this range to fail early this week and consolidate lower. USD/JPY is ready to make a move off the 90.5 level. If the recent trend continues you could see 92 in this pair this week. The commodity currencies look overdone to the upside as the Aussie challenged 0.92 friday and the USD/CAD made new lows last week near 1.0150. The move in the candadian dollar has been impressive but could use a breather this week. Does this mean commodities are showing a sell signal?

Commodities- Crude oil has put in a nice double top off the 83 level as it reversed hard on friday and closed lower. This morning it is already 2% lower and looks like it may bring the rest of the commodities lower as well. Interesting thing here is to see if it just the standard 2-4 day pullback or something more. It does seem to me like we could see oil test 78 and if it breaks that then the low 70s will be back. The metals also look a bit heavy and copper is double topping here too. Same thing applied to copper as oil. Gold is holding 1100 barely and looks like it might lose it this week. Below that level and you might see gold retest the 1060s perhaps.

Buy the dips>> GE, CIEN, MCD

Sell the rips>> BTU, RIG, BBL, HBC, KLAC