Weekly Watchlist 6/1

Going into June the markets are still range bound but looking a bit more bullish imo. Looking at weekly SPX chart on the left going back 2 years you can see that a longer term inverse head and shoulders is forming and the right shoulder is in the works currently. Whether this plays out or not we will have to watch. Its interesting because the neckline, resistance level, coincides almost exactly with the 200 day ema on the daily chart. On the weekly we have the 20 ema now rising and price consolidating above.

I think we have the chance to rally higher in the coming weeks into the high 900s. We have rallied sharply off the bottom in 3 months time but still its roughly only a 38.2% retracement from the collapse from 1300 on the SPX in Sept 08 to the 666 low in March 09. Its no surprise we are consolidating and moving sideways the last few weeks after hitting that fibonacci level. Next up is the 50% retrace. That will be at 989 and I think if we get over 930ish you should be looking for and expecting 989 coming next. And fyi the 61.8% retracement of the selloff sits up at 1064 so it would be quite the move if we can test those levels but its definitely possible in the next 3-6 months.

On the daily SPX chart the 200 day ema is at 943 and at this point I believe is too close NOT to hit. That is why I have an upside bias going into June. It seems the 870-876 area has and WILL continue to hold as rock solid support. This action we are seeing the last few months is bull market action, so get used to it. We are in a bull market. How long does it last? Who cares. Trade it as it appears.

This week's watchlist:

Longs: CAG, PSSI, MSFT, BEE, ITRI, CPA, DAR, KCI

Best bet: MSFT Buy trigger= 20.87 Stop loss= 19.40 Target= 23

Sideways City

Thursday the SPX grinded mostly sideways early on before ended the day on a plus note closing around 907. There are several bullish things coming together in other markets to make me think the probability of a higher SPX is coming. The EUR/JPY is rising lately sharply telling us that people are taking more risk and that means stocks will see more buying. Also the dollar is not showing much strength at all even on these weak bounces this week. This should continute to boost stocks in the intermediate term. Lastly, energy, banks and tech--the sectors that began this rally--are still showing bullish patterns and this is all good for the SPX going into June. I think the 875 area could prove to be a major floor in the SPX.

With that said I think for Friday we are going to be stuck in this range for a bit more. 890-910 seems to be a lock for the weekly close. My guess is we pullback a smidge Friday. The pivot for Friday is 900 even and that important level could act as a magnet for this market. I see a rather quiet day coming but we shall see. Next week should be a lot more interesting imo as the SPX is poised for a nice sized move in either direction; with my bias being up.

Afternoon Dive

On Wednesday the market seemed to be chugging along just fine above 900 and even 910 until midday when the bond auction saw less than enthusiastic demand sending yields straight up to 3.7% on the 10 year. This sent stocks falling and falling sharply. We ended the day on a bearish note as the 60 min and the 15 min charts both rolled over below key moving average support and the SPX closed up shop in the low 890s. At this point it looks likely that the SPX will retrace further to the 876 area where I see the next level of support.

For Thursday I want to be expecting this continued pullback and sell into weak rallies. The pivot is at 898.50 and price is already below that so that mark should become intraday resistance assuming we even test it. I would like to see the 876 level hold and see the market continue higher into June. However, 930 on the SPX and 8500 on the Dow is fierce resistance that the market will have to overcome if any continuation of a rally commences. The break of 876 would be bearish as I think then the market could retest the 850s and quite possibly the 830s but for now its just focus on the 876 support level.

Rally Time?

First off I wanted to say sorry for not being able to post the weekly outlook yesterday as I have been out of town with no internet since last week and finally back today. Secondly, wow what a rally in the markets out of the gate on Tuesday! After the consumer confidence number defied logic the SPX ripped thru 900 and closed at 910. Definitely an important bullish day but on light volume and thats what has me a bit cautious after a long weekend. I still am thinking we could more or less trade in a range between 880 and 930 for the remainder of the month. The break of either direction should tell us the direction of the next leg the market takes for the summer perhaps.

For Wednesday I want to be cautiously bullish and expecting the market to test support around 900. The pivot is at 899.25 so that area could see some buyers step in intraday and lift this market higher. Like I said earlier I would not be making too many big bets in either direction until this range we are in is broken.

In the coming weeks I am hoping to start issuing a weekly watchlist and focusing on stocks with great trading setups on the charts.

Working For The Weekend

Well first off I just wanted to note that I will be away from the screen until Monday as I am headed out of town for the long weekend. It will be nice to get away from the markets for a few days. Anywho, Wednesday was an interesting day from a chart standpoint. The SPX raced higher to tag the 925 area before reversing course and closing lower on the day. Pretty bearish if you ask me. Why dat?

Well the overall market and even some of the key stocks (like GS as I posted earlier) had ugly outside reversals and failed to break last week's highs. At the same time, momentum indicators are diverging down and rolling over. I would be cautious for the remainder of the week and approach the markets expecting a further pullback. It's tough to say when since we have a holiday weekend coming so the volume will be light and they might wait till next week to sell it down but I am starting to think the SPX could have a date with 850 soon.

For Thursday the pivot on the ES futures is at 907.50 and price is far below that tonight so it could either turn out to be a continuation selloff or a sideways boring kinda day. Whatever it is don't be looking at much upside here.

GS Bear Call Spread

Goldman Sachs (GS) has been a very strong stock lately as it got to the 144 area. I think it is getting a bit heavy up here and as the market is pulling back today unable to eclipse last week's resistance I think GS could retrace back into the 120s in the coming weeks. The daily candles on GS also has a bit of a bearish tone to them the last few days. Lastly, I see some negative divergence on the MACD and RSI indicators as they roll over. I am selling a GS June call spread.

Sell the June 140/145 call spread for 1.75 or better.

Your max risk on this position is 3.25 if GS closes above 145 at June expiration.

Max gain is the initial credit you take in and keep if GS is below 140 at exp.

Your breakeven on this trade occurs at 141.75 at exp.

I think this is a nice moderately bearish trade if you expect a grind lower as I do. And of course, you can always take profits before this spread expires.

All About SPX 900

Tuesday the markets started off strong but again on low volume and finally the end of day fade came in and sellers pushed the SPX down to 908. So we didn't form the most bullish candle on the daily but there is some support below here at 900. That is the level I will be watching mid week to determine if this recent pop is a fakeout or not. My gut tells me we could see further selling and a retracement back into the 850s. But I will let the charts tell if that gut is correct.

On Wednesday the pivot on the ES futures is 908.25 and price is a bit below that tonight so I would think that level, combined with the resistance from the last hour selling today, could prove to be a ceiling for now. On the downside I think if we break 900 then a gap fill down to 885 is likely. Below that and this market is probably going to grind a bit lower; but I do not think it will be sharp, rather a slow grind. On the other hand if this price breaks above the pivot then all bets are off to the downside.