Monday, May 10, 2010

Weekly Outlook 5/10

Starting this week we have a EURO bailout on our hands that has sent the markets gapping up by about 400 points in the Dow. The ES futures closed friday at 1107.50 and that creates a downside target to fill the gap once it starts to move lower. Also we still have a gap to fill above here from last week at 1198.50. Which gap gets filled first is tough to say so I will let the market tell me but all gaps do get filled in the S&Ps so mark these levels down and watch them.

Our markets are lucky to see a bailout plan for the Euro so drastic in the short term because I think this could have been a very ugly week if something wasn't done. At the same time this is just a short term fix to a long term problem that only buys the ECB more time to come up with something more meaningful. I would not be surprised to see our markets end the week lower from where we are today. It's hard to look to the long side after the market snapped back and gapped higher to retest the 1150 level that was so crucial on the recent move lower. I would expect resistance to take over between 1150-1170 on the SPX.

 I actually think we could settle into a range between 1100-1150 for the next few weeks perhaps. But am starting to see signs the markets eventually will want to retest the lows from last week and even potentially take them out to the downside in the coming month or two. This week will tell us alot about whether the market still wants to head higher in the longer term or if the rapid decline is telling us that the fundamentals do not support higher stock prices going forward into the 2nd half of 2010. Remember the charts ALWAYS foretell the fundamentals.

Currencies- The moves in the Euro and other related currencies have been crazy the past few days and this morning is no different. The EUR hit a low last Thursday of 1.2518 and open this morning at 1.2919 before rallying up to 1.31 and then now selling off below 1.28. These are huge moves. I can't see the EUR heading too much higher from here as it got its initial recovery rally off the bailout. Ultimately I do see the EUR going lower and making new lows below 1.25. Maybe much lower. Also the potential unwind of the carry trade showed up last week as the EUR/JPY and AUD/JPY got the smack down and this showed signs of occurring way before the so called "glitch" in the system. Risk appetite was put off the table for safe haven trades liek gold and US bonds. I see this continuing into the next week at least and it could be warning us of whats coming down the road still ahead of us.

Commodities- Like I said above the risk trade was off last week and after a snapback early this week we could see a continued sell side action in things like copper and oil. Crude had a huge reversal last week as it fell more than 10 dollars to close the week near 75. If this area breaks you will see 70 in crude and potentially even lower as there is plenty of downside since most everyone has been bullish on oil this year and this has room to unwind lower. My short term view on oil would change above about 82. As for gold I still love it long but it has ran quite a bit and could be ready to pull back off the 1215 area. It almost got to 1225 high from November so it may still retest that level but I would think it would struggle to break out to new highs after gold just rallied nearly 100 bucks. Plus, the early summer season is a historically weak time for gold in which it usually pulls back off the spring highs. I do think later this year gold is poised to shoot higher and tag 1350 or higher.

Buy the dips>> AAPL, ICE, SBUX, GLD, COP

Sell the rips>> FCX, HAL, MS, QCOM, APA, ANR, ISRG, HES