July 10, 2011
Weekly Market Outlook
By Keith Schneider
The stock market continued its bull charge this week trampling some of the big hedge funds and anyone crazy enough to be short based on economic fundamentals. Even with an anemic job growth number reported last Friday morning, the market hardly retreated, just a mere ½% loss on Friday, recovering nicely by the close. Many big players have been seriously gorged by using irrelevant economic analysis. Such concerns as will the current earnings season be as good as the last 6 and what will be the guidance look like going forward, is the anemic economy as witnessed by the new payroll numbers (up a paltry 18,000 last month) truly indicative of the future, are the sovereign debt issues in Europe solved, and last but not least, will our very own debt ceiling crises that comes to head on Aug 2, really cause a default? Notice in the photo above how just a few bulls have the whole crowd intimidated. And so it goes for the market. Some old fashioned tape reading is the required art form here to separate the real bull from the bulls##t.
SPY (S&P 500), DIA (Dow Jones), IWM (Russell 2000) and QQQQ (NASDQ 100) Indexes
Of the 3 key US market Indexes, the QQQ closed with the smallest decline on Friday closing down just -.3%. Also noteworthy, is it touched its high for the year this week, way outperforming the other indexes. The rather mild correction on Friday is a positive. However, the relative strength index is overbought as well as the market internals so after an extended move right up to the highs of the year we would not be surprised to see a correction or some sideways action to work off this overbought condition. There is no denying the primary trend is up. Another observation here is that the QQQ’s have closed higher than where it opened for 9 consecutive days. Earnings season is upon us and with stocks overextended there is added risk. Generally, this is now very short term trading for new positions and time to tighten stops or take some money off the table for existing positions, which we did on Thursday before the employment numbers. If we directly move up form here without some corrective action, the upper channel should offer some good resistance just above the yearly highs.
NASDQ 100 (QQQ) Overbought but great price action
Dow Jones (DIA) Well defined channel from 2009 lows shows support at 113 and resistance at 132 and nearing overbought levels on weekly charts
Sectors
Transportation ($Tran): Making new all time highs is the transportation index, usually a good sign for the economy. Does it know something about the recovery? A little caution here as it’s overbought for the short term on our daily RSi.
Market Internals
VIX (sentiment): Even with the extreme move last week we did not reach “irrational exuberance” and are now in bullish territory. If the market moves higher, look for this index to continue to drift lower as “risk on” prevails.
McClellan Oscillator (breath): this intermediate term breath indicator has clearly reached overbought readings and has started to hook down indicating a correction is underway. Will it be more sideways action to work off this condition or does a real selloff remain to be seen?
Advance/Declining Issues: This shorter term breath indicator is clearly very overbought but must hook down thru its recent swing low or penetrate the plus 2000 level to confirm a correction is underway.
Up Volume/Down Volume: This shorter term volume indicator when used with ADV/DEC issues works extremely well. Currently, this indicator is also overbought but needs to hook down thru 60 or the recent swing low to confirm that a correction is in gear.
Accumulation/Distribution: Markets are clearly in bullish mode as we have many more accumulation days even with Friday’s action.
Gold (GLD): As seen from this monthly Gold chart, the trend is clear and intact. The actions by the FED keeping interest rates at ZERO and printing money to keep the economy afloat to avert price deflation is clearly showing in this defacto currency. This trend is a textbook case of a strong uptrend. Major Support at the 140 -142 levels.
Silver (SLV): Bounded by the recent high at 38 and recent lows around 32 makes these critical levels. If we break out form either one of those levels we can expect another 20% move from those levels either way.
MMM Premium Swing Trades: the last 8 trading days were a field day for MMM premium members as we had a number of stocks that are up between 10-20%. Some examples are NFLX, WYNN, AAPL and AMZN. Here is the chart on AMZN, a classic breakout above the 50 day ma with a clear compression zone and good volume patterns.
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