Monday, July 26, 2010
Stocks are coming off about the best week in months as Friday the SPX closed at 1102 and solidified a positive week of price action capped off with the stress test results squeezing more shorts as the bears failed to push the market back lower. The bad data has simply been priced in at this point and with a nice higher low in place I think a decent base is being made here with crucial support down at 1093 ish. I have a bullish bias for the remainder of the month and into August. I think intermediate term we can grind up all the way into Labor Day in the first week of September. In the short term everything looks good but too good. I think we can easily test 1130 this week which is the high from June. But at some point this week I expect a pullback to the 1090s which will be a buy.
Like we said last week copper and bonds are the key to this market and copper broke out and gave a strong buy signal early last week before stocks made there move higher. Bonds are now giving sell signals on my charts and with a close on friday below the low of the high bar of the TLT and /ZB bond futures we can see an allocation shift from bonds into equities furthering the risk asset rally into August.
Internals have been stronger lately and the advancers/decliners ratio will be key to watch this week if we expect any kind of pullback. I also watch the $NYMO McClellan and that is up at +80 which is getting pretty stretched into overbought territory. The higher this thing goes the better the odds of a market pullback coming so with it so high its hard to get extremely bullish short term but realize that any 1-2 day dips are buys.
Currencies- EUR/USD looks bullish again as it tries to break 1.30. If it does I think 1.3125 is logical first target. GBP/USD is back to its April highs at 1.55 and should at least stall here for a bit. It has had such a strong run off the 1.4226 low. AUD/USD is ripping higher again as it broke resistance last week and now is challenging 0.9030. This was the signal last week for commodities and AUD remains in a strong trend on the 4 hour chart this week. USD/JPY is hanging under 87 as the yen is still holding tough and everything here still looks like its going below 86. EUR/JPY looks bullish as it tries to break 114 to the upside. Has a nice long inverted H&S setup on the 4 hr chart.
Commodities- Oil is hanging in the high 70s and feels like it wants to break out above 80 but is def taking its time. Copper has continued to rally after breaking out last week and is now up at 3.23. A full 50% retracement of the correction from April. The easy money here has been made and should probably pullback between here and 3.30. Gold is struggling to fall below that 1180 level and if it is going to correct further towards to 1150 then it needs to break support here in the next day or two. Or else it can pop a bit maybe back to 1215. Bonds are looking bearish as they broke down with the stock rally last week and continue to look heavy breaking trendlines. I think t-bonds are going down to at least 125.
Buy the dips>> BIDU, AAPL, CREE, FCX, X, VMW, MELI, AKAM, HMIN, NENG, SHOO, CXO, RMBS, SKS
Sell the rips>> TLT, GLD
Monday, July 19, 2010
After Friday's selloff alot of indicators are in sell the rips mode intraday. However, I don't think this is the start of a new leg lower. Friday saw some very weak internals and if we can hold the 1050s with improving internals then maybe a higher low can be in place. I think 1050 is basically crucial support and that needs to hold or else the recent rally will have retraced more than 50%. The market could be setting up an inverted head and shoulders as I highlighted in the chart and above 1100 you gotta be bullish on this market. I think we do get above there just because thats the last thing the crowd is thinking about and the world is bearish. We are in the middle of the quiet summer months and seasonality tends to favor the bulls and low volatility into August.
The keys to this market are copper and bonds. The bond market has been rallying for the past 3 months as money comes out of risky assets like stocks and floods into safe havens such as treasuries, gold, and cash. The bonds seem to be completing the 5th wave of the rally and could be topping out for now. If bonds show weakness early this week this is a nice signal that stocks can rally. The other part of the safe haven trade, gold, has already broken down and looks bearish like I have been saying.
Currencies- The EUR hit 1.30 and has since slightly backed off but nothing says this leg up is over yet. Besides the fact that GBP is retracing off its highs at 1.5471 and back down to 1.52 today. GBP has been a decent leader for the EUR so this may infact be worth watching. The weekly EUR is still bullish but getting into some tough resistance. At the least expect a consolidation to form soon. USD/JPY looks horrific and should fall further to new multi-year lows, which means yen is getting stronger. AUD got super close to the 0.89 I mentioned last week and seems to be having trouble up here. It's back to its 50 day ema and bouncing but if it fails to hold then watch out below for all commodities.
Commodities- Gold is breaking down out of last week's bear flag and seems like its headed for a 50% retrace of the spring rally back to 1155. Below that the 61.8% fib sits at roughly 1129. I can see a flush coming here. Copper is looking heavy and if it breaks 2.90 then it will break the symmetrical triangle its been in for weeks. Oil still stuck in no man's land. Daily chart looks like it could be a H&S or a cup and handle so will need to watch for confirmed break of 80 to get bullish. Otherwise its chop city.
Buy the dips>> NFLX, BIDU, MELI, FFIV, SAM, WPZ, TBT, NTAP, CTSH, GMCR
Sell the rips>> GLD, NEM, CME, DE
Monday, July 12, 2010
This week has one word to it. Earnings. AA and INTC kick off the action and then GOOG, GE, C, and BAC finish the week. We rallied into earnings week as the market had moved too much in anticipation of bad earnings. This probably leaves the door open still for a surprise the downside as the S&P has rallied about 75 points in one week. I think the most bullish thing the market can do this week is actually pullback to 1050 and hold as a higher low. That would be the first higher low in ages and could show us that the market is stuck in the 1000-1100 range for the time being. Or we rally up to 1130 and fail again with a double top and then consolidate sideways thru July and August. Whatever happens I think we have probably entered rangebound summer time trading, barring any crazy news of course.
The 1085 level represents the 50 day ema and also is price resistance. The 200 day ema is at 1095 and the 1095-1100 zone is site of the downtrend line from the top in late April. I think we see some decent consolidation before we attempt to break any of these levels. However, if we do get a close above that 1095 then you have to be open to the possibility of much higher prices thru earnings season since the first week of earnings reactions usually guide the market for the coming weeks.
Sentiment was so stretched to the downside before last week's bounce as the bull and bears survey from AAII returned only 21% of pollsters bullish. This is a low mark for the poll since last July 2009. I also keep hearing people compare this head and shoulders to the one in July of last year. They are not similar imo. This one is much larger in duration and has formed AFTER 5 waves up completed. I do think we have probably seen the highs for the year but don't underestimate this market's will (or the Fed's will) to push prices up into the November election time period one more time.
Currencies- The EUR is getting closer to the 1.30 area and is probably very close to being a good sell up here. I think closer to 1.29 is a good place to start lookin for weakness and for it to roll back over. DX is in a pretty orderly pullback and that actually looks more bullish to me once the downtrend is broken on the daily. USD/JPY looks like its bear flagging on the daily and if it drops out of the flag it should head to new lows. A strong yen would also probably pressure stocks lower. EUR/JPY is consolidating nicely and should test the 113 level this week which is the 50 day and heavy resistance. AUD and CAD are looking bullish once again and AUD could see 0.89 this week if it continues.
Commodities- IF AUD does pop then oil and copper should hold a bid but their charts arent terribly bullish as I have been saying for weeks. Oil is pretty much trapped in a range between 69-79. Copper is consolidating very nicely near 3.00 and could go either way. It needs to break and hold 3.13 for any rally of size to begin. Below 2.90 its ugly and should put pressure on the stock market. Finally, gold is interesting here because its not really bouncing back from that selloff and it seems like it wants much lower prices. I think the pattern here is bearish and should see 1155 soon on the next leg with a potential target down at 1120 in the coming weeks.
Buy the dips>> GOOG, AAPL, NFLX, CMI, AAP, GAME, UNP
Sell the rips>> GLD, BUCY, URBN, RL, SPG, GOLD
Tuesday, July 6, 2010
This week is a shortened week with light economic data and thus should be fairly low volume and potentially lower volatility. The reason I say potentially is because this market is pretty much still on thin ice and flirting with new lows everyday. We have not seen a capitulation bottom yet and until we see that flush of selling action with volume and a intraday reversal back to positive territory I will be expecting the downside. I still see us getting back to the 980 level shortly. The overnight lows on the futures brought us down to 1002 until they pushed the ES clear back up to 1038.50 this morning. This is likely nothing more than a snapback rally and guess where it stopped. Just under 1040. That massive resistance which will be tough to crack for now.
Earnings starting next week should be the next catalyst for the market to do its thing. I would think if we sell into the rest of the week then we could see a slight bounce into the first week of earnings season because the worst case scenario would be priced in.
Currencies- The EUR is seeing the bounce I have been looking for the last few weeks and we have got to 1.266 today. I think the easy money of this bounce has been made and now it should be more of a grind. I think the highest it goes from here is 1.30 and that would be a stretch in the short term. The USD/JPY is the weakest looking chart and I think the yen continues to rally and this pair should break down under 87 soon. This pair and the EUR/JPY cross shows risk appetite and they have both stabilized but not really rallying to the upside. IF EUR/JPY gets over 111 the market could stabilize further and fear might dissipate. The AUD is recovering back above 0.85 after finding a double bottom support level above 0.83 overnight. This is bullish short term for the commodities.
Commodities- As such, the oil and copper market is rallying today off the dollar weakness. I'm not really bullish here but it was overdue for a dead cat bounce. Oil has a serious risk of losing the 72 support level this week and falling further to 67. Copper support comes in at 2.90 and needs to hold if the stock market has any chance this week of recovery. Gold imploded last week as I had said it wanted to after failing to break out of 1266. I think gold could retest the 1175 level next.
Buy the dips>> AAPL, GMCR, SAP, BHI, CREE
Sell the rips>> AMZN, PCLN, GOOG, QCOM, ICE, POT, CLF