May 1, 2011
Weekly Market Outlook
By Keith Schneider
The world (and much economic activity as well) almost came to a halt as people all over stopped to gasp at the pomp and circumstance of the British royal wedding. On the economic home front we also got the royal treatment from the Fed, as Bernanke promised more free money for Wall Street and the banks. Think of it as more of a renewal of the wedding vows. Stocks loved it! A great marriage and true romance as long as the free money lasts. Meanwhile, the Fed is telling us that there is no inflation yet gold moved up over $50 per ounce by week's end and the dollar reached lows not seen in over a year and not too far from historic lows. There seems to be more upside from here, but according to some of the smart money, the market could be as much as 30% overvalued. Someone needs to tell the money Emperor that he is not wearing any clothes!
For specifics on our current trading outlook and technical outlook read on.
SPY (S&P 500), DIA (Dow Jones), IWM (Russell 2000) and QQQQ (NASDQ 100) Indexes
The key news this week was that the Fed is keeping things status quo and the market loved it. We closed up over 2% for the week in DIA (Dow Jones) SPY (S&P 500) and IWM (Russell 2000) and 1.3 % higher for the QQQ's (NASDQ 100). All Indexes closed on new 3 year highs and NASDQ hit levels not seen since internet stocks imploded back in 2000. The key indexes are all in a bullish phase and this advance has been relentless. Our short term RSI is fairly overbought, so look for a bit of correction and then a resumption in line with the overall bullish market conditions. The QQQ's look like the most tradable short term and a breakout from this compression zone could be followed for a good mini-swing trade.
Market Internals
VIX (sentiment): As we mentioned last week, this indicator slipped into irrational exuberance and fired off a warning when it moved back into its trading bands, so it's not a sell signal yet, as tops take a bit to form and this indicator should be confirmed by price action such as penetration of the 1O day moving average.
Accumulation/Distribution Volume: With the big rally over the past few weeks we have put in a bunch of accumulation days across all key indexes - bullish.
Up/Down Volume: Our short term breath indicator achieved overbought status on the last few days of the rally this week and has backed off from its highs as the market has marched higher. Our shortest term indicator is negative.
Sectors
Gold (GLD) and Silver (SLV): Gold took leadership this week as silver hit a wall as it neared the highs put in 30 years ago ($50). Thank you Nelson and Bunker Hunt. Also, taking a bit of wind out of the sails was the recent (relatively benign) margin increase in silver. The daily silver chart looks ominous as it approaches $50 dollars. The gold/silver ratio is 33 to 1, down from around 60 back last September, making gold look like a bargain. So, although people are talking a long term double top in silver (clearly possible) the gold action looks more like a rotation into gold and a temporary pause in silver's parabolic ascent. I would not be surprised to see a $10 dollar move either way, so if you can't stand the heat, stay out of the kitchen. Certainly reduce position sizes and consider option plays.
XLF (Financials): Even with the Fed pouring money into the financial sector it has been lagging badly. We had an inside day just below the declining 50 day moving average. How this sector plays out from here is an important clue to future market direction of the overall market. Are we going to fail at the 50 or power out and over for a leg up? Nonetheless, this is a great low risk setup that we will be watching closely.
This Tuesday in our monthly MG Prime newsletter, I will be covering why silver is so strong and what you are up against when buying individual stocks to play this historic move in precious metals. Click here and don't miss our next issue of MG Prime plus new recommendations. We exited two positions with great returns in this service. IBB for a 20% return (held since December) and DECK for almost 8% in just a few weeks. All with no leverage.
Swing to Mini Swing Trade
The featured trade this week was AMZN. After a poor reception to the earnings report this week the stock barely responded and tested our fast moving average, setting up for a long entry. We and our subs bought at 186 and by the close had a 2 ATR profit for mini swing traders. Swing traders are still in with no loss stops in place and good open trade equity.
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