March 6, 2011
Weekly Market Outlook
By Keith Schneider
Well it finally happened. Continental Airlines has finally stopped complimentary feeding it's passengers entirely, even cutting the remaining goodies which have been reduced to just pretzels. So now passengers can starve on their way to their destination. Some airlines are now charging for carry on as well as check in luggage. Are seats the next to go as a freebie? We hope the airlines are treating their pilots a bit better than their passengers.
Along with rising energy costs, airlines have recently raised their prices 6 times. At some point, if rising energy prices sustain, it will kill this recovery. Virtual Vacations anyone? Of course the market can remain irrational much longer than one can remain solvent, so it's not surprising that investors seem to have a hair trigger on the sell button as energy spikes, as well as a hair trigger on the buy button as greed kicks back in as soon as energy ticks down. It's hard for anyone including the experts to know how this Mid-East situation will play out. There are always unintended consequences. Now on to the details...
SPY (S&P 500), DIA (Dow Jones), IWM (Russell 2000) and QQQQ (NASDQ 100) Indexes
Even with oil rocketing up this week on fears about further disruptions due to Libyan turmoil and other ripples spreading through the Mid-East, the key indexes still put in a small plus week. Very resilient! The market phase is still positive and bullish and in fact after the dust settled, the QQQQ's (NASDQ100) and the IWM (Russell 2000) settled above their fast (adaptive) moving averages adding more fuel to the bullish camp.
However, the DIA (Dow Jones) and the SPY (S&P 500) settled under their fast moving averages and each had 2 good size distribution days. In fact we are close to taking out the highs from 2007 in the IWM, and not even close in the SPY. Smaller caps often lead the way out of economic recoveries and this seems to be the case. Meanwhile the 50 day MA is critical support in the indexes, which coincides with the lows from the recent market swoon.
Market Internals
VIX (sentiment): After initial scare on news out of Libya, the test of the 200 day moving average of this indicator was repelled. The market has gone back into it's trading bands below the 200 day moving average which is our most reliable intermediate term sentiment indicator. However, noteworthy is the fact that we are trading above the 50 day MA and not that far away from that critical 200 day. So while this is still in a bullish condition, we are much closer to triggering a sell signal on any selloff.
Accumulation/Distribution Volume: The see-saw action of the past week ended with a mix depending on the index. The SPY and the DIA closed with several distribution days this week and could not register an accumulation day when the markets were up big this Thursday. Meanwhile, the QQQQ and IWM (Russell 2000) were the strongest out of the key indexes, so fairly mixed here. The SPY and the DIA both closed with distribution days on Friday.
Sectors
Gold (GLD): Gold made new 5 month intraday highs in the futures market this week, but then could not hold, retreating hard on Thursday only to recover most losses again on Friday, on the heels of the big oil rally. It always pays to look at the underlying futures charts for the best read. We had two different stories painted by the GLD (ETF) versus gold futures. Futures showed a pretty clear failure at old highs while GLD (ETF) had two good closes above all time highs. Follow the underlying future contract for the true pulse. Meanwhile the conversation is playing out here at the highs in gold. We are using short term trading techniques to catch some momentum and it can go either way here in this news driven market dictated by oil.
Oil (OIL) CRUDE ETN: Crude prices finally woke up the past few weeks rising almost 20% from the low in mid February causing volatility in the stock market. Why it took so long to come alive is certainly an interesting question. Prices actually went down as Tunisia erupted. The key is that you align the technical's (trading tactics) with the big picture. Being ahead of the curve fundamentally may not pay off if your trading tactics are not correct and persistent.
New Economy Stocks: The most interesting charts playing out in terms of leading stocks representing the web economy are both GOOG and AMZN. Both are showing signs of weakness as their 50 day moving averages are flat to down and price action is underneath these moving averages. GOOG is in the middle of an important channel and AMZN has already broken through but both are holding the 2011 lows so far - both are at critical levels.
Opening Range Strategies
The feature trade on Friday was NFLX. Even as the market tanked on Friday, NFLX finally started it's bounce after a heck of a sell off, almost 50 points from the highs since mid February. The classic setup was the OR breakout over R1 and off the 50 day moving average.
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