Monday, July 26, 2010
Weekly Outlook 7/26
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