Weekly Outlook 5/17

This week the market is continuing to sell off as almost the entire gap up from last monday is given back. The gap I was looking for in the /ES sits at 1107.75 and we have come within 5 points of that this morning. The slide from 1172 last Thursday has been furious but there was also very little reason we were up last week at all. Oversold bounce and that was completed in three days. That is not bullish. And it looks like this selloff wants to go further than three days so the gap fill is the first target then the 1100 area is home to the 200 day ema which everyone will be expecting to hold. So I wouldn't be surprised if we break it for a day and then suck in a lot of bears and shorts just to see it bounce back up and create a short squeeze.

Things are not good and fear and volatility is reflecting that properly but still I believe we are entering a stretch of sideways trading that should last thru the summer. This could be a wide range though. Measures of risk are still pointing to more downside and the best measures out there have been the EUR/JPY and AUD/JPY as well as the dollar index. The flight to safety is continuing as all industrial commodities get thrown over the cliff. Copper is a leading indicator or the market and it has not stopped selling today which indicates the SPX is not close to bottoming.

Another problem is sentiment. The longer term sentiment has shifted in the public eye with the stock market. Retail Joe has lost trust in the mechanics of the market and the oil spill doesn't help. Just as the recovery was starting to become believable in the eyes of the middle class the market starts to care about the Euro problems. Longer term this doesn't favor terribly higher prices in the market later this year, if at all. Short term however the sentiment is stretching to the fear side as the VIX is at 34 and I would expect that to grind lower into the options expiration this week.

Currencies- It seems that everyone is talking EUR and even is short the EUR and when it feels like this then you gotta be prepared for a short covering rally. One problem. A country defaulting and riots in the streets overshadow that and can take a move much farther than you think. The EUR really doesnt have a lot of support below 1.23 until 1.18 and I would be surprised if we don't see some kind of stabilization at least this week. AUD and CAD look very weak as they have corrected with the price of commodities and show little signs of being ready to bounce yet. AUD has support at .8650 so I would look for that to hold this week.

Commodities- Copper is down 7% today alone and now trading at 2.92, well off the highs over 3.50. This could actually get down to the Feb low of 2.81 or lower if the industrial fears continue and China growth slows. Crude oil is down 20% from the high a few weeks ago and trading with a 69 handle this morning. This chart looks terrible and I think could even retrace to the mid 60s.

Buy the dips>> AKAM, COST, CREE

Sell the rips>> FCX, FSLR, WYNN, JOYG, CAT, CCJ, GOOG, HBC, RIMM

Weekly Outlook 5/10

Starting this week we have a EURO bailout on our hands that has sent the markets gapping up by about 400 points in the Dow. The ES futures closed friday at 1107.50 and that creates a downside target to fill the gap once it starts to move lower. Also we still have a gap to fill above here from last week at 1198.50. Which gap gets filled first is tough to say so I will let the market tell me but all gaps do get filled in the S&Ps so mark these levels down and watch them.

Our markets are lucky to see a bailout plan for the Euro so drastic in the short term because I think this could have been a very ugly week if something wasn't done. At the same time this is just a short term fix to a long term problem that only buys the ECB more time to come up with something more meaningful. I would not be surprised to see our markets end the week lower from where we are today. It's hard to look to the long side after the market snapped back and gapped higher to retest the 1150 level that was so crucial on the recent move lower. I would expect resistance to take over between 1150-1170 on the SPX.

 I actually think we could settle into a range between 1100-1150 for the next few weeks perhaps. But am starting to see signs the markets eventually will want to retest the lows from last week and even potentially take them out to the downside in the coming month or two. This week will tell us alot about whether the market still wants to head higher in the longer term or if the rapid decline is telling us that the fundamentals do not support higher stock prices going forward into the 2nd half of 2010. Remember the charts ALWAYS foretell the fundamentals.

Currencies- The moves in the Euro and other related currencies have been crazy the past few days and this morning is no different. The EUR hit a low last Thursday of 1.2518 and open this morning at 1.2919 before rallying up to 1.31 and then now selling off below 1.28. These are huge moves. I can't see the EUR heading too much higher from here as it got its initial recovery rally off the bailout. Ultimately I do see the EUR going lower and making new lows below 1.25. Maybe much lower. Also the potential unwind of the carry trade showed up last week as the EUR/JPY and AUD/JPY got the smack down and this showed signs of occurring way before the so called "glitch" in the system. Risk appetite was put off the table for safe haven trades liek gold and US bonds. I see this continuing into the next week at least and it could be warning us of whats coming down the road still ahead of us.

Commodities- Like I said above the risk trade was off last week and after a snapback early this week we could see a continued sell side action in things like copper and oil. Crude had a huge reversal last week as it fell more than 10 dollars to close the week near 75. If this area breaks you will see 70 in crude and potentially even lower as there is plenty of downside since most everyone has been bullish on oil this year and this has room to unwind lower. My short term view on oil would change above about 82. As for gold I still love it long but it has ran quite a bit and could be ready to pull back off the 1215 area. It almost got to 1225 high from November so it may still retest that level but I would think it would struggle to break out to new highs after gold just rallied nearly 100 bucks. Plus, the early summer season is a historically weak time for gold in which it usually pulls back off the spring highs. I do think later this year gold is poised to shoot higher and tag 1350 or higher.

Buy the dips>> AAPL, ICE, SBUX, GLD, COP

Sell the rips>> FCX, HAL, MS, QCOM, APA, ANR, ISRG, HES

Weekly Outlook 5/3

Going into May the market seems a little toppy and could retrace back down to that 1150 area I have mentioned. At the same time if it just consolidates between 1170-1210 then it could just be resting for its next leg higher. I do not think this market has topped out for the year because the internals are just too strong to justify that scenario. While we could see that minor correction in May it would probably just be the start of some range bound trading going into summer. There continues to be sector rotation that allows the broad market to stay afloat at these levels as individual sectors take turns moving higher week after week.

I think the next few weeks could see a nice volatile move in either direction and I tend to think it could be higher as a possible blowoff top move comes into play. After this we should see a correction that lasts more than a few days but so far it seems each pullback cannot last for more than 2 trading days. Which is bullish. Remember that volatility can and does increase in rallying markets that enter a blowoff type move where everyone wants in.

The sentiment is still stretched a bit in the short term surveys that measure bulls and bears. The AAII survey showed only 18% bearish investors which could show a short term top. Overall in the longer term I think we have not seen the euphoria needed to signal the top of a bull market. Still too many top callers and skeptics out there and that defines the middle stages of a bull market.

Commodities- The oil patch is starting to look good as long as you are not exposed to the oil spill in the Gulf. Ouch. Overall I still like the dip buying in crude oil and think it still has a target of 92 by Memorial Day. Commodities in general look good minus the copper and industrial metals that are pulling back. Gold is a rockstar lately and I see 1200 this week on gold. That breakout of 1140 that I mentioned a few weeks back was the signal.

Currencies- Euro is continuing to be a sell the rip candidate as the Greece trouble keeps weighing on the Euro. EUR is actually stabilizing on the daily and even though the momo is down I think a close above 1.34 may actually get some shorts to cover and  you could see it base out at the least. However if it breaks down I see 1.30 quickly. GBP looks ready to rollover to retest the lows near 1.48 as long as it stays below 1.53, the site of the 21 ema. GBP has outperformed the EUR lately so that could continue as well if GBP gets back over 1.53. AUD has been consolidating nicely above 0.91 for weeks and I think it could go either way here but I lean towards an upside breakout of 0.93. The reason I have some caution about AUD is because the other commodity currency the CAD is showing signs of reversing and falling against the dollar. A breakout above 1.02 could show a short term bottom in the USD/CAD. This along with strength in the JPY could show risk appetite coming off and stocks pulling back.

Buy the dips>> OXY, BRY, WFT, KEY, RF, ENP, DNR, GLD, UXG, POT, CRM

Sell the rips>> NTRS, STT, ACH, GOOG, HBC, DB

Weekly Outlook 4/26

Entering the last week of April the market is in full melt up mode and I see it continuing up thru 1230 on the SPX and possibly 1250 soon after. Nothing seems to stop this bid in the markets and its becoming a chase for performance once again. People are starting to chase this market higher as it runs away from them and adding to that the shorts have to cover every time new highs are made because they are proven wrong time and time again. This is how topping processes usually start out but they are processes and that's why calling tops is a foolish game whether your name is Elliot Wave or not. The trend is your friend.

I do expect the next month or so to be more of the same with a blowoff top of some sort coming in May that precedes a small correction by mid month. The volatility should increase in the blowoff move as it usually does as everyone tries to pile in to the mosh pit to experience the thrill. Until that happens we will see this continued grinding sort of melt up. Each dip has been bought whether it's been another Greece story or the GS saga. There are unreal single stock stories out there this year whether its AAPL, NFLX, CREE, or LVS. These names have seen amazing explosions in the last few months and the momo should continue.

While this may not be a huge surprise to you, the Goldman Sachs fraud charges seemed to shake retail investors' nerves, as last week's American Association of Individual Investors' poll revealed that the percentage of bullish investors dropped from 48% to 38%, and the bearish percentage jumped from 29% to 34%. This can extend the duration and magnitude of this bull run as emotion is not at the frothy levels it may have been before the GS scandal appeared. 


Bottom line is that I know its hard to be thinking this market can go to SPX 1300 but weren't you thinking the same thing in late 2008 when the SPX was at 950 and saying no way we see 666. Well it happened. I never have many expectations in the market I just try to let the market tell me when it wants to move. The markets will ALWAYS overshoot value and where they 'should' be simply because markets are made of up of the aggregate emotions of all participants involved. Be rigid in your disciplines and flexible with your expectations.


Buy the dips>> APC, APL, GLD, OIH, RYL, ANR, BUCY, BYD, BA

Sell the rips>> RIMM, NTRS

Weekly Outlook 4/19

After the GS bloodbath on friday I want to see how the market acts early on this week before I commit myself to much. Lots of stocks had a bit of technical damage on friday and that could take a few weeks of correcting and basing to erase. I will expect a bit of a bounce early this week but I think we have further downside to the point that we could correct 4-5% by the end of April. The goal for this week should be to either get hedged having some shorts to match your longs. Or just get flat and re-evaluate the market when it settles into a setup you can trade.

The SPX big support level below is 1150-1155 and I doubt we see that right away but we could be headed there in the interim if the market struggles this week to regain 1205 level. The main thing you gotta ask yourself is if you bought stocks a month ago would friday's selloff get you nervous enough to sell? How bout if you bought a week ago near 1200? Or Thursday? If these people bought and are now nervous then they could sell to get out and that will put some pressure on the markets.

Sentiment surveys are maintaining high levels of bullishness this week matching the levels of early January and mid August 09. This does make me a bit cautious as extreme bullishness on the AAII survey has marked short term tops many times. Much better than a VIX reading, or put/call ratio for timing imo. Magazine and newspaper headlines are emerging with optimism about this market's recent run higher. This is another sign in the short term things are overheated and need a rest or pullback. Longer term I'm not sure if we have reached the "euphoria" stage that most bull markets experience before they fizzle. We have seen "acceptance" of this bull market but will we see that final blowoff if we make a new leg higher in the coming months? We shall see.

Currencies- The dollar strength on friday was a flight to safety type of move and sellers came into risk currencies like the Aussie and euro. If the EUR has trouble this week above 1.35 it could move lower to test recent lows or even make new lows. It will important to watch the Aussie and CAD dollars early this week to see if they can recover some of the downside since friday because they lead the commodities like gold, copper, and oil. I still say that above 0.91 the Aussie is a strong currency and this could just be a pullback in a bull trend.

Commodities- The gold market got hit Friday after traders thought Paulson would have to liquadate his gold holdings (of which he owns plenty billion) to account for the coming redemptions that may hit as a result of his involvement in the GS fraud. Probably a big over-reaction but watch gold to see if it can get back over 1140. Oil needs to stay over 83-84 if it will continue higher. Still think crude can challenge 90 and break it in the coming weeks.

Buy the dips>> RIG, OXY, NOG, BZH, MCD

Sell the rips>> SOHU, LM, LFC, KALU, TLT, MFE

Weekly Outlook 4/12

This week the market should continue up thru 1200 as earnings season starts off. Also, with options expy week here it could give an uptick in realized volatility. Some Bernanke speak midweek as well might add to the action. The important question is are expectations too high going into earnings season like they were in Jan and Oct which sparked nice corrections to the downside. It's hard to say but I kind of doubt it as of today because I still people convinced this rally will rollover anyday. Bullishness is up a bit in recent weeks but still plenty of room of retail traders to push this thing higher especially after this round number resistance in the indices is taken out and the media does a table dance around it.

As for technicals the charts really just keep grinding up and taking there time. As much as you may think the market shoudn't go up, it relaly doesn't matter because it will do what it wants. And right now it wants to go up and the weekly and daily charts are saying so. I do think the rally has legs into early May where we may see a correction into early summer but we could rally alot between now and then. The SPX being above the 200 week ema is a big signal that we have a floor underneath us. I see 1225 as an interim spot of heavy resistance that should be the next target once we break 1200 which was roughly the July 08 low. Look how far we've come.

In the short term you gotta keep watching the transports (IYT) and Russell 2000 (RUT) as these are market leaders which should lead the SPX higher this week.

Currencies- The euro gapped up big with the GBP as the Greece debt concerns eased over the weekend. Euro now has a good shot of testing the 1.38 level from here as the dollar index pulls back to the 80 mark. Aussie gapped higher as well but completely gave it all back this morning as it traded back down to 0.925, more than 130 pips off the sunday night highs. I still like the Aussie to the long side going forward as long as it holds the 0.91 level. Weekly chart looks exceptionally strong here and I think this currency is the key to holding the stock market up as it influences where commodity prices go.

Commodities- Gold looks about as good as it gets. After consolidating for the past 3 months or so gold has broken out over 1140 to test the 1165 highs from Jan. If this level is held I don't see any reason why it wont go up and thru 1200 and it could happen fast. Copper is holding the recent breakout of 3.50 and I still see upside in copper above this level. Remember copper has been a fantastic leading indicator of the SPX in recent years. And right now it is showing no signs of slowing. Crude above 84 is still a buy and should head to 92 imo. Bonds popped back higher last week after the 10 year tagged 4% yield. I think this is temporary and bonds are in a major topping pattern.

Buy the dips>> VMC, PCX, DPZ, FCX, SU, APA, BP, BWLD, LVS, COP, RGLD, DRI, FLR

Sell the rips>> IMA, RIMM

Weekly Outlook 4/5

As the first full week of April begins the market is still looking strong after the jobs report data last week. SPX hitting 1185 this morning and still looks like it has legs to the upside, much to the shock of the bears. This really does look like a melt up that will continue until every last short has thrown in the towel and bought. You can't really try to predict that so why bother? Follow the price action and it will tell you when it wants to turn and roll over. For now play the long the side and obey the order flow.

This week the FOMC minutes are released on Tues. and there are some bond auctions that could influence the market as the 10 year bond is now approaching 4% as I have been saying it will for weeks. Bond prices are headed much lower in my opinion and this is only the beginning of the move. The play on any pullback is long TBT or short TLT. Also, Bernanke has a speech on Wed and the BoE and ECB rate decisions are on Thursday morning.

Currencies- The commodity currencies will be the ones to watch this week as we have the Aussie and Canadian dollars still very strong and near the upper part of their ranges. These pairs track and even lead the price of copper and oil sometimes. Last week we finally got a close above 84 for crude and above 3.45 for copper which means that they are in breakout mode and they look bullish going forward. The Aussie is at 0.92 and could see 0.94 next. CAD is basically at parity with the US dollar and showing no signs of stopping. The yen continues to be weak and the weekly chart shows a breakout of the USD against the yen which should continue for several weeks or months. Finally, the euro and pound have become the quiet names lately as they consolidate back up. Euro really has to take out 1.37 to the upside to reverse any kind of downside momo.

Commodities- Like I said above, oil and copper are breaking out and that is powering most energy sector stocks higher as they have lagged the last few months. Also gold and silver are bullish now that they have moved above some key levels. I think this trend may continue this week and if you see gold above 1140 then you can really see a nice move to the upside. Also, bonds are a sell the rip candidate imo.

Buy the dips>> RGLD, APA, SLB, LVS, MGM, FSLR, KLAC, PCLN, ANR, VMC

Sell the rips>> TLT, NTES