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