April 17, 2011
Weekly Market Outlook
By Keith Schneider
As the US outsources its jobs overseas, one thing you can be sure of, the last thing actually made in America will be US dollars. Not the printing presses that actually do the printing, mind you, they are made outside the US. When we finally outsource where its printed too, then it's really game over!
The big budget boondoggle was finally solved, and hooray - no government shutdown! We trimmed $38 billion off of a $1.5 trillion deficit. Most of those savings were mostly projects that were due to end anyway. In addressing the nation our President couldn't even mention the "raising taxes" concept. The deficit reduction is less than 3% of the total deficit; these are not exactly draconian or even meaningful numbers. More like rounding errors. Meanwhile, the real economy is suffering, as foreclosures (still at historic levels) will accelerate in some areas, as soon as the banks can find the paperwork.
A bullish stock market and parabolic precious metals are just not sustainable. Something has to give. However, markets can stay irrational longer than one can stay solvent. I would not fight the tape but I would keep an even closer eye on the emergency exits, regardless of the asset class. When QE2 ends , this commodity and stock bubble could pop. Or- maybe QE3 here we come? Clearly, the excess money sloshing its way thru the markets is finding its home in the precious metals. The unstable geo-political situation is adding fuel.
If QE3 is implemented, metals will continue, the dollar will most likely drop further and it's hard to imagine how this will inspire confidence in the equity markets. Another interesting footnote is that Glencore, the most secretive commodity trading firm in the world, is going public at a 60 billion dollar valuation. Are they smelling a top in commodities sometime soon? Stay tuned.
SPY (S&P 500), DIA (Dow Jones), IWM (Russell 2000) and QQQQ (NASDQ 100) Indexes
All of the the key Indexes corrected this week working off overbought levels, waffling back and forth between warning and bullish market phases and closing with small losses for the week. With the exception of the QQQ, all closed back in a bullish phase. All this makes for some very choppy trading. IWM really bounced nicely off of its 50 day MA with good volume and actually put in an accumulation day while the QQQ remain in a warning phase. Two very divergent patterns.
Market Internals
VIX (sentiment): It was noteworthy that this indicator displayed little fear even as the market was selling off and for a moment looked like the sell-off might really accelerate until buying came in. In fact, this indicator closed on Friday at its lowest level since mid 2007, before the meltdown.
Accumulation/Distribution Volume: Talk about some divergence here, IWM put in an accumulation day and looks good technically while the leading NASDQ stocks(QQQ) had a yet another distribution day and this indicator is now on a sell signal for the QQQ.
Up/Down Volume: This short term breadth indicator has been working quite well recently and is bouncing off oversold readings and looks positive for the moment.
Sectors
Gold (GLD) and Silver (SLV): Gold and Silver both moved to record highs this week and silver is already parabolic. Silver has moved 3 x more in the past 6 weeks than its entire price for decades. The thing about parabolic moves is that it is almost impossible to know how far it can go or when it will end. One needs the instinct and discipline of a floor trader to manage this.
IBB (Bio-tech): This sector has been on fire and has been a favorite holding of ours and been our MGPrime buy list since December. Mergers and major new announcements on breakthrough drugs have fueled this move and it still is poised for even more upside.
New Economy Stocks: Many of the leading stocks are pausing or stalling out and GOOG reported earnings that resulted in a tank job closing down almost $50 and on its lows for the day. We are watching this leadership carefully as its another indicator regarding the future direction of the markets.
Opening Range Strategies and HotScans
The featured trade on Friday was GLD. Nothing is better than daytrading commodities in parabolic mode using the opening range strategies. When fear and greed rule, the accuracy markedly improves on these strategies. Check out the chart below which illustrates not an instant of pain buying the Opening Range breakouts!
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