Monday, July 19, 2010

Weekly Outlook 7/19




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