Sunday, August 15, 2010

Weekly Outlook 8/16

Last week's selloff after the Fed statement was a game changer and I think that this market needs to prove itself back above some key resistance levels before I get bullish. I have been playing the trading range of the summer from both sides but I do have an overall bearish view for the markets into the end of the year and 2011. Long term I am int he double dip camp and I think its foolish to think the economy will recover beyond where it already has. Tops are processes and not events like bottoms usually are. So with that said I think we have been forming a long term top this past 6 months and the path of least resistance is down as long as we stay below the highs of 1131, which I am thinking are legit highs at this point for the short and medium term.

Early this week could be quiet and that might give the market a weak bounce back to the 1090-1100 level but that will be a chance to short into it and buy puts as I think we test 1060 this week as that is roughly the 50% retrace of the July rally up. If that is broken then 1040 and then 1010 is very likely to come calling fast.

The thing to remember is that last week the selloff really took some indicators like the McClellan to decent lower levels which doesnt mean they cant go lower--infact I think they will--but the downside in the short term is limited and the best place to get short is on that potential bounce to the 8ema or 1090s in the SPX.

Patterns like the one present in the SPX where a market rallies up off new lows like it did in July only to fail at resistance and quickly retrace are not patterns that usually hold up on the next test of support. So I think upon the next move lower into the July lows they will breakdown and the real selling will only be getting started in the medium term as a 979 first target is on the table going into the next month imo. Write it down. That is a 127.2% fib extension of the July rally.

This is probably also a very good time to get to cash in your 401k or longer term retirement investments as I believe the highs are in for the year and a bear market is on the horizon. I will write more about this in the coming days and weeks.

Currencies- The EUR/USD is now back to leading the stock market as it broke its uptrend last week and sold off violently after the Fed statement put a bid into the dollar index and bonds and gold. The EUR is headed lower and 1.25 is a good first target going forward. AUD/USD is testing the 50 day at 0.89 and could bounce short term back to the 0.91 but looks like it could chop a bit this week near these levels.

Commodities- Crude had a big reversal down last week and looks bearish again as the low 80s are too tough to crack. There is really no reason oil should be this high to begin with so I wouldnt be surprised if it came back to the high 60s on the next selloff in the market. Longer term H&S possibly setting up on crude. Copper still looks decent above 3.15 and is just consolidating its recent huge advance higher. Gold is key this week as it needs to close above 1225 to look bullish to me and if it doesnt then a break below 1195 would be troublesome to the bulls. Grains sitll look like the strongest market out there with corn and wheat leading the way.


Sell the rips>> AAPL, LULU, BAC, MGM, KLAC, GOOG, PBR, HES

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