Monday, May 3, 2010
Weekly Outlook 5/3
Going into May the market seems a little toppy and could retrace back down to that 1150 area I have mentioned. At the same time if it just consolidates between 1170-1210 then it could just be resting for its next leg higher. I do not think this market has topped out for the year because the internals are just too strong to justify that scenario. While we could see that minor correction in May it would probably just be the start of some range bound trading going into summer. There continues to be sector rotation that allows the broad market to stay afloat at these levels as individual sectors take turns moving higher week after week.
I think the next few weeks could see a nice volatile move in either direction and I tend to think it could be higher as a possible blowoff top move comes into play. After this we should see a correction that lasts more than a few days but so far it seems each pullback cannot last for more than 2 trading days. Which is bullish. Remember that volatility can and does increase in rallying markets that enter a blowoff type move where everyone wants in.
The sentiment is still stretched a bit in the short term surveys that measure bulls and bears. The AAII survey showed only 18% bearish investors which could show a short term top. Overall in the longer term I think we have not seen the euphoria needed to signal the top of a bull market. Still too many top callers and skeptics out there and that defines the middle stages of a bull market.
Commodities- The oil patch is starting to look good as long as you are not exposed to the oil spill in the Gulf. Ouch. Overall I still like the dip buying in crude oil and think it still has a target of 92 by Memorial Day. Commodities in general look good minus the copper and industrial metals that are pulling back. Gold is a rockstar lately and I see 1200 this week on gold. That breakout of 1140 that I mentioned a few weeks back was the signal.
Currencies- Euro is continuing to be a sell the rip candidate as the Greece trouble keeps weighing on the Euro. EUR is actually stabilizing on the daily and even though the momo is down I think a close above 1.34 may actually get some shorts to cover and you could see it base out at the least. However if it breaks down I see 1.30 quickly. GBP looks ready to rollover to retest the lows near 1.48 as long as it stays below 1.53, the site of the 21 ema. GBP has outperformed the EUR lately so that could continue as well if GBP gets back over 1.53. AUD has been consolidating nicely above 0.91 for weeks and I think it could go either way here but I lean towards an upside breakout of 0.93. The reason I have some caution about AUD is because the other commodity currency the CAD is showing signs of reversing and falling against the dollar. A breakout above 1.02 could show a short term bottom in the USD/CAD. This along with strength in the JPY could show risk appetite coming off and stocks pulling back.
Buy the dips>> OXY, BRY, WFT, KEY, RF, ENP, DNR, GLD, UXG, POT, CRM
Sell the rips>> NTRS, STT, ACH, GOOG, HBC, DB