Monday, April 26, 2010

Weekly Outlook 4/26

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 Investorspoll 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

Weekly Outlook 4/19

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

Weekly Outlook 4/12

This week the market should continue up thru 1200 as earnings season starts off. Also, with options expy week here it could give an uptick in realized volatility. Some Bernanke speak midweek as well might add to the action. The important question is are expectations too high going into earnings season like they were in Jan and Oct which sparked nice corrections to the downside. It's hard to say but I kind of doubt it as of today because I still people convinced this rally will rollover anyday. Bullishness is up a bit in recent weeks but still plenty of room of retail traders to push this thing higher especially after this round number resistance in the indices is taken out and the media does a table dance around it.

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.


Sell the rips>> IMA, RIMM

Monday, April 5, 2010

Weekly Outlook 4/5

As the first full week of April begins the market is still looking strong after the jobs report data last week. SPX hitting 1185 this morning and still looks like it has legs to the upside, much to the shock of the bears. This really does look like a melt up that will continue until every last short has thrown in the towel and bought. You can't really try to predict that so why bother? Follow the price action and it will tell you when it wants to turn and roll over. For now play the long the side and obey the order flow.

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.


Sell the rips>> TLT, NTES