Monday, June 7, 2010
Weekly Outlook 6/7
This week the big level in the SPX I am watching is 1070. This is make or break week for the market. If we can sustain a few days of buying above 1070 then the potential for a short squeeze rally exists into June option expiration--which by the way is next friday already. As for levels on the upside I think 1100 could be the first stop on any sort of strength. Above that resistance is all over the place and 1125, the site of the 50 day ema, would be a logical place for the market to hit the wall. As for if 1070 breaks down then all bets are off and we could see a thrusty move down to 1020 to set up a potential bear trap below the obvious 1040 low that everyone is watching. I do have downside targets of 950 for the next major leg down that should start a bear market and make officially 20% down from the top. However, I do not think we see this major decline in June as the odds are better to see a snapback of some sort to get folks back on the bullish train right before the cake hits the fan later in the summer.
This market is still volatile and that is shown by the 5th straight week that the VIX has closed above 30. That is just an amazing statistic that would have seemed impossible just a few short months ago when VIX was hanging around in the high teen's and daily ranges on the Dow would not exceed 50-60 points. Now we are seeing VIX futures price in a 30 VIX all the way out to October, which is telling us that this recent volatile stretch is not being seen as a blip and should continue into the 2nd half of the year.
Currencies- The dollar index broke out to new highs last Friday off the back of the ugly jobs report that sent stocks lower and the EUR/USD to new lows under 1.20. The dollar remains the strong currency out there but now has gotten strong against the Aussie and Canadian dollars, not just the European currencies. That is a troubling sign longer term as AUD and CAD have been the fuel to the commodity rallies this past year. This could be telling us that market is predicting lower commodity prices going forward. EUR hit a low of 1.1876 overnight and could easily see 1.18 this week. GBP looks even more dicey on the downside if it cannot hold current levels near 1.44. First downside target on GBP would be 1.41 and 1.3950 afterwards. On the upside GBP may retest 1.47 but there is alot of resistance there. AUD and CAD look heavy but are overdue for some basing or even a bounce. AUD needs to hold 0.8075 or else copper and oil will get hit harder.
Commodities- Copper got crushed last week as it broke below 3 and friday hit new lows on the year under 2.81. I think copper is in a longer term topping pattern as China slows but shorter term it is overdone and could start to bounce back this week between 2.66-2.70. Crude oil is fighting the 70 level this morning and has a good shot of breaking down into the mid 60s or even down to 62.50 eventually. Gold and silver look strong this morning and gold should retest the 1250 highs from last month. I do think it now should breakout of 1250 and run higher because the momentum is just so strong and I have a fresh buy signal on the daily chart of gold. First target is 1270 and then 1295.
Buy the dips>> BIDU, SNDK, BBG, NGD, HL, GOLD, MA, DLR, ICE
Sell the rips>> AMZN, GOOG, CREE, FCX, RTP, ANR, MS, HIG