Monday, July 12, 2010

Weekly Outlook 7/12

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