Market Cannot Continue Gains

SUMMARY:
- Market cannot continue the gains, but that is rather normal.
- Pundits negative on the action, but with the news Friday, if things were still bad it would have been down a lot more.
- Personal income rises, spending falls.
- Michigan sentiment rising, but now sentiment means less.
- ECRI indicators predicting 'noticeable slowing.'
- Still just a bounce in an overall bearish environment. Again, we are not married to the bounce, just using it for what it has.

North Korea blusters, Spain debt downgraded, and stocks fall . . . but not as bad as you would think.

There were some negative things said about the market after the Friday close. After a big 4%+ run on Thursday, the indices closed in the neighborhood of 1%. NASDAQ -0.9%, the Dow -1.2%, SP500 -1.2%, and SP600 -1.3%. They were down across the board. The NASDAQ 100 fell only 0.5%, so maybe there is a little positive light there. In fact, I think there is more than just a little positive light. Looking at the chart for the day, a lot of the loss came late in the session. The market was down most of the day, but it held and rallied back into the last half hour. It was moving higher until the last 20 minutes or so, but it was still holding on and recovering. Then, right at the end of the day, some sell programs pushed the indices down perhaps making the losses appear worse than they were. The market was coming back, and that was not bad action. Why am I not too negative? I am not a raging bull about this market at all, but I think we are still due for more of a bounce. The market was in a tremendously oversold condition as the SP500 undercut its February lows and reversed. Massively oversold and ready to bounce in the short term, and it started to do that. Maybe it will fail; the SP500 failed at the 200 day EMA on Friday, so maybe it will not make the continued move.

There are a few things to consider before you conclude that this bounce is dead and buried. Number one, it is normal after such a huge run higher to be a bit soft the next day. There was a lot of short covering on Thursday. There was not the need to cover as much on Friday, but there was still some covering late in the day. The market rallied off new lows for the session and almost eclipsed the highs on the day, so there was some short covering. It was down and a little bit weak, but it was not a massive rollover where the sellers blew out whatever buyers there were on Thursday. Number two, there was a lot of bad news out on Friday, yet the market still managed to rebound in the afternoon. North Korea threatened all out war or something silly of that nature as it usually does. It is silly with a threat behind it, however, because they are a nuclear power. They could do a lot of harm to some of our allies and more peace-loving nations. Another piece of bad news came during the day when Fitch lowered the credit rating of Spain from AAA to AA+. That is one notch and not a huge move, but it was huge in the fact that it was actually done. There is always a lot of talk about whether the PIIGS are credit-worthy or not. The fact that Fitch is recognizing this and moving down the credit rating is just the tip of the iceberg. Remember how late to the party all of the rating agencies were when the economy basically collapsed? All of these great companies were holding a bunch of crud and no one bothered to lower the ratings even though everyone knew it was crud. To many, that means that when the credit agencies finally get on board it is a bit late in the game. That was bad news, and yet the market still managed to come back late in the session. But for that last five minutes were it got ugly, it was not a bad close at all.

It is understandable to be a bit negative with the recent selling; it has been the worst May since 1940. I think that is the statistic all of the financial stations were throwing out. What is the old adage? "Sell in May and go away." We sold a lot and made a lot on the downside, and now I think we will get a bounce even with all of this negativity. Again, it is understandable to be down on the market, but most people are negative at the wrong times. It crescendos. A lot of the sentiment indicators are starting to show the extremes. VIX surged higher, and after it surges the market typically rallies. It is not right away, but a week or two down the road. Looks like we are trying to get that started right now. That is a lot of negativity. We are also seeing -11:1 closing breadth, and that was getting to be extreme. The put call ratio was over 1.0, and indeed up to 1.3-1.5 several sessions in a row. These are all extremes that indicate the market is getting overdone to the downside. This bounce we saw in the SP500 and the other indices on Thursday, while it did relieve some of the downside pressure, did not relieve a significant amount. After all, you have the indices at a key level. SP500 is at the February low as well as long term lows it is still holding right now. Note how it reversed to get back. It is the same with the NASDAQ. It is holding up at long term support levels that date back to 2000. These key levels combined with the extreme indications suggest this bounce is not over. I am still looking for a move back up to the January high on NASDAQ and, more specifically, on the SP500. Maybe it will only get to the bottom of this consolidation range in January. Whatever. We will just watch it, and we have taken some upside. We will let them bounce up. If it stalls out there, we will close down most of our positions. If there is a further run higher, then that is great. If not, we are out of them, and we will flip it to the downside and go from there.

Again, I never said we were married to this bounce. I did not think it was the bottom of any correction and the start of a new bull run. It is an oversold bounce. There is still a lot of work to be done because these are very sharp moves. There are two old adages in the market. You either grind them out with a long, slow process of going nowhere, or you scare them out with the huge moves up and down. That is how double bottoms are formed. Maybe there will be a double bottom that shoots the market higher or maybe not. I think we will get a double bottom that will take us up mid range. That is obviously a tradeable move and we are already in positions for that. This has definitely got the "scare them out" flavor to it. With so many pundits still negative and with the market at such extremes as far as the internals and sentiment, that suggests we have more of a bounce coming. Let us not forgot it is the end of the month. Tuesday is the first day of the new month and starts the last month of Q2. There will be money put to work, I believe, on Tuesday. That could be the catalyst that carries SP500 up for another couple of days. That is all it really needs: two good days to the upside, and we have nice gains on our upside positions. Then we can take some off the table and see where it goes from there.

In a nutshell, the market is still in a negative bias. Yes, there is still a lot of negative sentiment, but that is working for us. The market did not collapse on bad news. It is holding some key levels, and it bounced off of those key levels. It took a day off on Friday with a bit of a hangover. There is new money that could come in on Tuesday with the new month, and that suggests there is more upside. Maybe I am wrong, but these kinds of sharp, downside moves have to have a pressure release, and I think we will get more of a pressure release. I do not think we will get all the way back up to the early-May peak after the May 6th flash crash, but I think we will get into the range between the January lows and the January highs. Again, that will make us money on the upside before we flip it back to the downside. Marriage? No. We will use this date for all we can get out of it. I know that sounds cheap and trashy, but sometimes you have to treat the market that way because you know very well it will try to treat you that way.



OTHER MARKETS.

Dollar. The dollar was up on Friday. It had a rough week because there was some belief that Europe may recover when China said they are European backers. Of course China holds a lot of European bonds and Euros and it will back its investments. Just the way it says it will stay with the US, even though sometimes it does so a bit begrudgingly. The dollar rallied (1.2268 Euros versus 1.2361 Thursday). The dollar is still at a double top at an important level. It is at the late 2008/early 2009 peaks and is encountering a bit of resistance there. There is a bit of double top and a bit of good news out of the EU, so the dollar is stalling a little. It does not look to be in serious trouble even though it has a small double top in place. It may try to come back a bit more and test. This was a heck of a run during the fear that hit in early May. A bit of a pullback into the range above the 50 day EMA would not be out of the ordinary.

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Bonds. Bonds had a better day after getting crushed on Thursday with the improving economic conditions in the EU and China's backing of the Europeans. Not huge, but it was still a move up (US 10 year 3.30% versus 3.35% yield Thursday). There was a bounce in bonds. It was clubbed, and this is interesting because there was an island reversal. There was a gap higher, then five days across, and then a gap lower on Thursday. It is at the bottom of this gap point and at the 18 day EMA, and we will see if it bounces from there. Bonds should be selling if the US economy is strong and everything is working correctly. The problem is that the EU scared everybody, so bonds have been rallying in the US as a safe-haven trade. If we get over the idea that the EU will collapse and we assume that the US economy will improve, then bonds should continue to sell. They are showing a little weakness but are not showing a breakdown yet.

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Gold. Gold was up slightly on the session ($1,213.70, +1.80). It rebounded last week. There was a little bit of the fear that drove it lower on deflation worries. Now that China is backing the EU and the US economy is continuing to chug along with modest gains in the economic numbers, gold is moving higher on an inflation trade again versus a deflation selloff. Gold is back at the December 2009 peaks and has held there for three sessions. It had trouble getting through it back in late April and early May. This is a key point for gold. It could come back, test further, and break higher. It could be an ABCD pattern perhaps. This is one I am watching. If inflation wins out and everything gets copacetic, then it could run back up. With all the outstanding money, the worry would be inflation. Later I will look at some of the economic data which suggests that may not be the case.

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Oil. After a strong week with a double bottom at the bottom of its seven-month trading range, it had a nice surge to the upside. Friday it gave back a bit ($74.09, -0.46). Considering that oil was breaking $68.00 per barrel not even a week ago, it is a pretty impressive move. It is a technical move on some better feelings about the fear and the economic future in Europe. That helped bolster oil this week, and we will see if it can hold. It is down at the bottom part of the trading range. Oil is kind of in the same situation as the SP500 and the stock indices that still have an oversold condition to work off.

http://investmenthouse.com/ihmedia/xoil.jpeg


TECHNICAL PICTURE

INTERNALS

Breadth. The internals were pretty ho-hum on Friday. Breadth was -2:1 on the NASDAQ, and basically -2:1 on the NYSE. It was not weak or insignificant breadth, but it was relatively tame action compared to what it has been at -5:1 to -10:1 (and of course you can flip it on the upside days).

Volume. Volume was weak again, down 8.5% on NASDAQ and up 2.4% to 1.4B on the NYSE. It is elevated but lower compared to where it has been of late. Can you read much into that? It was lower-volume selling, so that would be good. Less selling pressure, fewer players influencing the market. If a few of them decide to sell, of course it can move the market without a lot of volume showing up. Then when everyone comes back it changes its tune. You can look at it that way, but it was also Friday before a three day week. It will be lower and always is. It is a bit significant, but I will not read much into it. It did not change much.


CHARTS

SP500. There was the flash crash on May 6th, and it held above the February closing low and then undercut it last Tuesday with the big reversal day. Then it sent it higher on Thursday with a big surge. Low volume, so it looks like a bounce. I am not saying this is one to get hitched on, but just play the bounce. I think it will be tradeable coming into the range at the January peak. On the low that puts it around roughly 1130, and on the high it is roughly 1150. That is a band of resistance that I will watch. Hopefully it will continue higher with new money to start next week and the new month.

NASDAQ. NASDAQ did the same thing: It made a lower low, but it did not undercut the February lows. It did hold long-term support dating all the way back to 2004. It has held many times at this level which is where, notably, the flash crash touched on the May 6th low at 2185. That general level has held 8 times since 2000. It held it, it has bounced up, and it is above the 200 day EMA with that gap. I am looking for a move up toward the January peak at roughly 2325. It closed at 2257, so there is another 75 or so points to that level. That is exactly the trade I am looking for and we are playing right now.

SP600. SP600 was down 1.3% on the day, right in line with the other NYSE indices. It bounced off its 200 day EMA, held the January peak, and rallied last week. It was a modest turn down on Friday and still looks like it has room to the upside. It has some resistance in March, but I am looking more in the range where it gapped up in early April to be the resistance. We will see how it plays out. We are anticipating this run, and we have IWM calls we are going to play up. Then I do expect it to get to this May peak, but I am looking for it to get to the point where it gapped up. Then we can look at taking some gain off the table.

SOX. The semiconductors have not been blasting off to the upside, but they have been a relative strength leader. They moved back up to the bottom of the January consolidation and March consolidation and then stalled. They finished well off the low on the day. I still anticipate a higher move from the semiconductors. They could get up to this gap point from early April at 381 after closing at 355. They could have a nice chug to the upside before I expect a rollover and a comeback to consolidate. I am looking for consolidation by the indices. It is not that this jerky action is going to necessarily set the bottom to make a new rally to a new high off the 2009 lows. It is possible. We have set up a double bottom and it could ricochet it much higher, but this is not a very broad double bottom. Usually you have a larger-term picture. If you look at the two-day chart, you can see a rise, a fall, and a head coming back down the same level. Then it could make a shoulder if it goes back up to that January peak. That could be a longer-term head and shoulders, and that is usually what you see at a significant bottom. This could be forming a significant top if we put in a head and shoulders.

It is the same thing if you look at SP500 over the longer term. You could be putting in a left shoulder, a head, and if it bounces up to that January high and comes back down, you have a right shoulder there. That is something to watch for. That is a longer-term pattern than the little potential double bottom over the past four weeks. I am not expecting SP500 to get through the January peak, but we will be watching out for that. I will also be looking at that to play some downside and flip it over if the market stalls out there. The market is still in transition and still attempting to base out. It is not there yet, but the double bottom could shoot it back up to the January highs. Everyone is thinking it will roll over, and it may. It could be a real weak bounce and take it right back down, but we have seen such extremes in sentiment and volatility that this oversold condition is not worked out of the market yet. We will get the bounce we want before it rolls back over and gives a nice gain to the upside. Then we will get the heck out of dodge.


LEADERSHIP

There is not a lot of leadership right now. Many stocks have taken it on the chin and are down, but there have been relative strength leaders in this market.

Retail. This sector led on the way up and is recovering faster. TJX has bounced nicely this week off its own double bottom from the May 6th low and the recent low last week. Nice move up off that level after breaching the 50 day EMA. It has recovered it. COST had a big surge up on Tuesday. It cleared the 200 day EMA and gave it up marginally on Friday, but there was no volume there. Nice move up, and it could continue higher as well. You can see this in many other stocks in the retail sector. PNRA had a nice double bottom coming back up, and it has room to run a bit to the upside as well.

Semiconductors. Semiconductors were stronger, showing relative strength. LSCC is looking better. There was a nice, good-volume break higher on Thursday. It gave it back on Friday but is holding on low volume above the near support. NVLS had a strong move off a little double bottom, and that is actually working as a handle. If you look at a weekly chart, you can see something of a double bottom with handle forming. Not bad.

Metals. Metals made something of a comeback. They held key levels and bounced last week, and we will find out what they are made of next week. We will see if they can get back up toward the May peak. MTL has significant resistance at 26. That is a nice bounce if it will make the run for us, and it started it. We will see if it can finish. FCX is the same story. It held an important level, undercut one of the levels, and then bounced with a little double bottom off the lower level, breaking back through there is that false breakdown and rallying higher. I am looking for more upside to see if it can extend with the continued market rebound before it rolls back over. The rest of the market is in a lot of disarray at this point.

Financials. JPM bounced nicely off of a support level, broke it, came back and tested, and rallied higher. It came back Friday on lower volume, and we picked up some upside positions. It broke the near term downtrend. It was holding tight at the 10 day EMA and broke through that. We will see if it can continue higher after the hitch on Friday. It has plenty of oversold pressure built up and could easily pop up into the 44 level and give a nice move. We picked up some positions on it Friday. GS looks like it is trying to form a double bottom. I talked about the rising MACD on the play. It is still holding up nicely on Friday and in excellent position to continue higher.

We have three areas of leadership. Two of them are showing relative strength retailers and semiconductors. While the metals and some of the financials, after getting beaten down, have held key support and are trying to bounce. This is similar to NASDAQ and the SP500.


THE ECONOMY


Personal income and spending so-so.

Michigan sentiment continues to rise but its importance wanes.

ECRI (Economic Cycle Research Institute) points toward 'noticeable' economic slowing.


TO VIEW THE ECONOMY CLICK THE FOLLOWING LINK:

http://investmenthouse1.com/ihmedia/Economy.wmv



THE MARKET

MARKET SENTIMENT

VIX. The VIX has had big spikes and higher lows. That typically builds into more selling in the stock market, so you can anticipate that the selling is not over. There was a major spike, and now it has been a week of the VIX pulling back. It looks like it could bounce given the Friday action, but I think there is still more bounce that could take volatility back near the early-May low and the 50 day EMA. That would take the SP500 up toward its January peak, and that is the inverse relationship between the two at work. After you have a big spike in volatility, typically there is a move in stocks later down the road. I am expecting more of a bounce here. If we get a bit more upside, that is exactly the kind of oversold relief bounce we are looking for the upside plays.

VIX: 32.07; +2.39
VXN: 31.61; +1.31
VXO: 30.83; +2.43

Put/Call Ratio (CBOE): 1.21; +0.17

Bulls versus Bears:

This is a reading of the number of bullish investment advisors versus bearish advisors. The reason you look at this is that it gives you an idea of how bullish investors are. If they are too bullish then everyone is in the market and it is heading for a top: if everyone wants to be in the market then all the money is in and there is no more new cash to drive it higher. On the other side of the spectrum if there are a lot of bears then there is a lot of cash on the sideline, and as the market rallies it drags that cash in as the bears give in. That cash provides the market the fuel to move higher. If bears are low it is the same as a lot of bulls: everyone is in and the market doesn't have the cash to drive it higher.

Bulls: 39.3 versus 43.8%. Another substantial drop on top of the fall from 47.2% the prior week. Down from 56.0% before that, the high on this move, falling short of the 60% to 65% considered bearish, but not that short. As with horseshoes, it was close enough. This move started at a low of 35.6% in February, the lowest it has been since July 2009. 35% is the threshold level suggesting bullishness. After peaking at 53 on this move the bulls lost some nerve, falling to a new low post- July 2009. Once again bulls peaked out near the 50% level. Bulls have bumped at 50ish since late August 2009, falling to 45ish and then rebounding. Hit a high of 47.7% mid-June on the run from the March lows. Again, to be seriously bearish it needs to get up to the 60% to 65% level.

Bears: 29.2% versus 24.7%. After holding at 24.7% for two weeks the bears' ranks swelled after falling to 18.7% on the low. Hit a high of 27.8% level on the prior leg in February. Over 35% is considered bullish for the market; definitely at the lower end of the scale. Peaked near 28% in November, falling short of the 35.6% hit in July 2009. For reference, cracking above the 35% threshold considered bullish. Hit a high on this run at 47.2%. For reference, bearishness hit a 5 year high at 54.4% the last week of October 2008. The move over 50 took bearish sentiment to its highest level since 1995. Extreme negative sentiment. Prior levels for comparison: Bearishness peaked at 37.4% in September 2007. It topped the June 2006 peak (36%) on that run. That June peak eclipsed the March 2006 high (33%) and well above the 2005 highs that spawned new rallies (30% in May 2005, 29.2% in October 2005). That was a huge turn, unlike any seen in recent history.


NASDAQ

Stats: -20.64 points (-0.91%) to close at 2257.04
Volume: 2.124B (-8.5%)

Up Volume: 448.581M (-1.744B)
Down Volume: 1.637B (+1.519B)

A/D and Hi/Lo: Decliners led 2.11 to 1
Previous Session: Advancers led 6.71 to 1

New Highs: 36 (+5)
New Lows: 36 (+14)

NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg

NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg

SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg


SP500/NYSE

Stats: -13.65 points (-1.24%) to close at 1089.41
NYSE Volume: 1.456B (+2.38%)

Up Volume: 248.841M (-1.133B)
Down Volume: 1.196B (+1.158B)

A/D and Hi/Lo: Decliners led 1.96 to 1
Previous Session: Advancers led 8.54 to 1

New Highs: 74 (-3)
New Lows: 37 (-4)

SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg

SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg


DJ30

Stats: -122.36 points (-1.19%) to close at 10136.63
Volume DJ30: 244M shares Friday versus 265M shares Thursday.

DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg


TUESDAY

Monday is Memorial Day. We are going to have several important economic reports out including the jobs report on Friday. We will be building into that number. They are expecting 500K after 290K the month before, but a lot of those are government jobs. That is stimulus money going to states. Construction spending and ISM will both be important the ISM more so. We will see the impact of the weakening in the regional reports on the overall ISM. There will be pending home sales and then ADP on Thursday. That is the warm up for the jobs report. There are the always-important initial claims. Factory orders come in on Friday, and the non-farm unemployment rate. 9.8% down from 9.9%. We will see.

Sentiment has been rising, and that means more people coming into the jobs market. With 460-480K new weekly claims, they are likely not finding as many jobs as the more hopeful pundits believe they are finding. We may see more people coming into the market and pushing that rate up to 10%. It may or may not happen. It is pretty close, but I do not expect it to go down. These are all just wild guesses, and they are all close to 10% regardless of what you are looking at. With weekly claims of 460+, it is hard to say you are getting a lot of jobs growth. That will have a lot of impact on the market. If it is moving higher up at that point and the number is bad, you can expect it is heading lower

We are going to look at more of a technical orientation (of course that is the way we usually do it). I am still looking for a bounce higher off this reversal at important support points. One of the drivers for next week is that Tuesday is June 1st and money has been coming into the market at the beginning of the month. We will see if more money comes in and trumps any urge of the sellers to sell when they get back from vacation. That should drive the market back up toward this range of resistance between the bottom of the January consolidation on SP500 and the top or peak in January. That is our target on this move. If it gets there I expect it to stall some. We will take plays off the table. If there is a laggard that is not performing well, we will definitely close it out. The ones that are moving higher, we will take some of the gain off of the table on them. We can leave some depending on how we feel about the move and what it looks like. If there is a big reversal, I am inclined to close it out. If it just stalls a bit, we can take some gain and see if it just rests and then pushes higher. I will err on the side of taking more off than less given that the overall bias of the market is still down.

It has not shown that it has turned the corner by any stretch. We may have a longer-term bearish pattern setting up with a head and shoulders. We already have a left shoulder and a head, now we are back down the neckline and bouncing. Moving back up to this January range is the perfect setup for a head and shoulders top. That is what I will be looking for, and that is our entire game plan to this point. Once it gets there, we reevaluate, we take some off the table, and maybe have to flip it to the downside. We will take whatever the market gives.

Next week is a shortened week, but that does not mean there will not be fireworks. I am looking for new money to come in to push the indices higher toward the January peak. Then we will take gain, reevaluate, and be ready to take downside at that point. If we have to, we will close them out on the upside, move them in on the downside, and play another leg lower. You just have to take what the market gives as it goes through these consolidation ranges. If ECRI is accurate and it usually is and if there is going to be noticeable slowing in the economy, then why would the stock market build in gains? Indeed, the stock market is taking some of them out. With this potential head and shoulders forming, it could be heading lower before it goes higher significantly toward a new high. Thus we want to play that move. The character has not changed; we are only playing a near-term bounce. Even though the market has been wild, we have made some excellent money. The February through April rally was great. We made good money on the downside, and now we will scalp a bit on the upside before we roll over and probably make a big chunk to the downside on this next drop. Have a great three-day weekend.


Support and Resistance

NASDAQ: Closed at 2257.04

Resistance:
2275 - 2278 from the February 2008 and April 2008 lows
2273 to 2282 marks bottom of January 2010 lateral peak
2292 is a low from January 2008
2319 from the September 2008 peak
2320 to 2326.28 is the January 2010 high
2324-2370 is a range of resistance from early 2008
The 50 day EMA at 2350
2382-2395 from 2008
2412-2415 represents a series of peaks and lows in 2007, 2008
2434 is the May 2010 high
2453 is the August 2008 peak

Support:
2245 from July 2008 through 2260 from late 2005.
The 200 day SMA at 2228
2210 (from September 2008) to 2212 (the July 2009 closing low)
2205 is the November 2009 peak
2185 to 2195 represent support points for years: December 2004 peak, July to October 2005 consolidation, January, March and July 2008 lows, and October 2009 peak.
2177 is a low from March 2008
2169 is the March 2008 closing low (double bottom)
2168 is the September 2009, intraday peak
2167 from the July 2008 intraday low
2155 is the March 2008 intraday low
2100 is the February 2010 low


S&P 500: Closed at 1089.41
Resistance:
1101 is the October 2009 high
The 200 day SMA at 1105
1106 is the September 2008 low
1114 is the November 2009 peak
1119 is the early December intraday high
Bottom of the January 2010 consolidation 1131 to 1136
1133 from a September 2008 intraday low
The 50 day EMA at 1142
1151 is the January 2010 peak
1156 is the Sept 2008 low
1170 is the prior March 2010 high
1174 is the May 2010 high
1181 is the April selloff low
1185 from late September 2008

Support:
1084 to 1080 (September 2009 peak)
1078 is the October range low
1070 is the late September 2009 peak
1044 is the October 2008 intraday high AND the February 2010 low
1020 is the bottom of the late summer 2009 consolidation
946 from June 2009


Dow: Closed at 10,136.63
Resistance:
The 200 day SMA at 10,282
10,285 is the late December consolidation peak
10,365 is the late September 2008 low
10,496 is the November 2009 high
10,609 from the Mid-September 2008 interim low
The 50 day EMA at 10,617
10,730 is the January 2010 peak
10,920 is the recent May high
10,963 is the July 2008 low
11,100 from the 7-08 low
11,205 is the April closing high
11,734 from 11-98 peak

Support:
10,120 is the October 2009 peak
9829 is the September 2008 closing high
9918 is the September 2008 peak
9855 is the early September peak in its lateral range
9835 is the late September 2009 peak AND the February 2010 low


Economic Calendar

These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.

May 24 - Monday
Existing Home Sales, April (10:00): 5.77M actual versus 5.65M expected, 5.36M prior (revised from 5.35M)

May 25 - Tuesday
Case-Shiller 20-city, March (09:00): 2.4% actual versus 3.0% expected, 0.7% prior (revised from 0.6%)
Consumer Confidence, May (10:00): 63.3 actual versus 58.3 expected, 57.7 prior (revised from 57.9)
FHFA Housing Price I, March (10:00): 0.3% actual versus -0.4% prior (revised from -0.2%)

May 26 - Wednesday
Durable Orders, April (08:30): 2.9% actual versus 1.5% expected, 0.0% prior (revised from -1.2%)
Durable Orders ex Transportation, April (08:30): -1.0% actual versus 0.7% expected, 4.8% prior (revised from 3.5%)
New Home Sales, April (10:00): 504K actual versus 425K expected, 439K prior (revised from 411K)
Crude Inventories, 05/22 (10:30): 2.46M actual versus 0.162M prior

May 27 - Thursday
GDP - Second Estimate, Q1 (08:30): 3.0% actual versus 3.3% expected, 3.2% prior
GDP Deflator - Second, Q1 (08:30): 1.0% actual versus 0.9% expected, 0.9% prior
Initial Claims, 05/22 (08:30): 460K actual versus 455K expected, 474K prior (revised from 471K)
Continuing Claims, 05/15 (08:30): 4607K actual versus 4600K expected, 4656K prior (revised from 4625K)

May 28 - Friday
Personal Income, April (08:30): 0.4% actual versus 0.4% expected, 0.4% prior (revised from 0.3%)
Personal Spending, April (08:30): 0.0% actual versus 0.3% expected, 0.6% prior
PCE Prices - Core, April (08:30): 0.1% actual versus 0.1% expected, 0.1% prior
Chicago PMI, May (09:45): 59.7 actual versus 60.0 expected, 63.8 prior
U. Michigan Consumer, May (09:55): 73.6 actual versus 73.2 expected, 73.3 prior


June 01 - Tuesday
Construction Spending, April (10:00): 0.1% expected, 0.2% prior
ISM Index, May (10:00): 58.9 expected, 60.4 prior

June 02 - Wednesday
Pending Home Sales, April (10:00): 3.5% expected, 5.3 prior
Crude Inventories, 05/29 (10:30): 2.46M prior
Auto Sales, May (14:00): 4.1M expected, 3.9M prior
Truck Sales, May (14:00): 4.8M expected, 4.9M prior

June 03 - Thursday
ADP Employment Survey, May (08:15): 56K expected, 32K prior
Productivity-Rev., Q1 (08:30): 3.4% expected, 3.6% prior
Unit Labor Costs, Q1 (08:30): -1.6% expected, -1.6% prior
Initial Claims, 05/29 (08:30): 455K expected, 460K prior
Continuing Claims, 05/22 (08:30): 4600K expected, 4607K prior
Factory Orders, April (10:00): 1.7% expected, 1.3% prior
ISM Services, May (10:00): 55.5 expected, 55.4 prior

June 04 - Friday
Nonfarm Payrolls, May (08:30): 500K expected, 290K prior
Unemployment Rate, May (08:30): 9.8% expected, 9.9% prior
Hourly Earnings, May (08:30): 0.1% expected, 0.0% prior
Average Workweek, May (08:30): 34.1 expected, 34.1 prior

By: Jon Johnson, Editor
Copyright 2010 | All Rights Reserved

Jon Johnson is the Editor of The Daily at InvestmentHouse.com

Technorati tags: stock trading stock market investing Jon Johnson InvestmentHouse.com

A Return of Buyers?

SUMMARY:
- Thursday selloff continues early Friday but then reverses into a pre-weekend rebound.
- Sharply down week, February low, weekend, expiration lead to a rebound, at least for the day.
- Volume strong on the Friday upside, matching Thursday selling volume. A return of buyers? Expiration makes that position dubious.
- NASDAQ at a long term support level.
- Deflation trade entered the market last week, held through expiration.
- Poised for yet another attempt at a relief bounce. Third time the charm?

More selling but then, yet again, another recovery.

We saw it Monday and then again on Wednesday. The market sold off sharply, continuing the prior session's dive lower, then rebounded to a gain or damn near, setting up a potential oversold relief bounce. Of course on Tuesday and again on Thursday that intraday rebound was thoroughly trashed as the selling continued to the downside.

Indeed on Thursday at the close institutions were actively selling, meaning they were selling after an already ugly downside selloff. That is typically a bad sign as they are unloading shares even after a downside rout. Friday futures were down sharply again pre-market, some more follow through on the Thursday selling, aided by the US senate passing a non-reform financial 'reform' bill that many say puts US financial institutions at a clear disadvantage to non-US institutions.

Leading up toward the open, however, both German houses passed the proposed EU bailout package and that helped bounce futures. Not positive, but it did bounce them. The market gapped lower on the open as expected. Immediately, however, stocks reversed and rallied positive by lunch.

Why? As I noted Thursday, another move lower ahead of the weekend would prime the market for a bounce. The market sold off sharply to end the prior week and tanked this week through the Thursday close despite two rebound attempts on the way there. As stocks opened Friday the SP500 quickly fell to the February low, undercutting the February closing low, a key support point. A stock or index that sells hard and then undercuts an important support level often triggers a rebound. In addition it was expiration Friday and that often adds additional volatility spice. Throw in it was the weekend and stocks were pounded all week and you have the right ingredients for a rebound.

It was certainly enough to reverse the market almost immediately after the initial gap and selloff. Stocks turned and rallied, and by lunchtime sported gains in excess of 1%. It was not, however, a powerful surge back upside. Indeed after that surge the stocks started to test, something that is normal after a big recovery. They continued to test all afternoon, however, and by the last hour had pretty much frittered away all the gains. It took a late bounce to return the gains to decency status.

It may not have been powerful, but it was a recovery to 1+% gains. Stocks undercut or held important support and bounced . . . once again. The question heading into next week is whether this rebound, the third of the week, is the one that results in more than just a one-day recovery.


OTHER MARKETS.

The deflation trade that entered the market on the Tuesday CPI report remained through the weekend. After all, with the EU still a big question mark given the action in the bond markets and LIBOR (rose to 0.50 Friday from 0.48, the highest level since July 2009), there was nothing to change the emerging view that deflation is now a larger worry than inflation. This despite the trillions of excess dollars, euros, pounds, etc. floating around the world.

Dollar. The dollar sold back starting Wednesday and while a lot of people are questioning whether the dollar has peaked, the action suggests that is not the case. It continued its pullback Friday (1.2564 versus 1.2494 Thursday) after trading below 1.22 Wednesday before the reversal to the downside that day, but it is holding near the 10 day EMA. As noted Tuesday through Thursday, the dollar is close to bumping its late 2008 and early 2009 peaks and feeling some resistance. It also put in a spectacular run from early May and is near term overextended. That combination logically leads to a pullback to test the move. That is what the chart shows right now, and if it continues this trend the dollar is just testing and likely resumes its move.

http://investmenthouse.com/ihmedia/dxy0.jpeg


Bonds. An almost incredible run higher the past week as money rushed out of world bond and stock markets and continued pouring into the US bond market. Bonds approached the May 6 high on Friday before reversing field and closing basically flat (3.23% 10 year versus 3.21% Thursday). Incredible surge and as we know, incredible surges in anything lead to tests or corrections. Similar to the dollar, bond yields are approaching a prior high at the October 2009 peak and as such they are going to be tested. Thus, do not be surprised next week to see bonds sell back some, pushing up yields a bit. If it is just a normal pullback don't be fooled by the television talking heads. Until the world attains a comfort level with the European issues or the US economy suddenly weakens, money will find its way into US treasuries. We best hope the US economy is not pulled down by Europe; the Fed has no ammunition left to fight given rates are at 0% already and it still has $1.25T in assets it bought during the crisis. More government spending? Right; let's get to Greece's position in 2 years instead of 5 to 10.

http://investmenthouse.com/ihmedia/tlt.jpeg


Oil. Oil gapped higher after trying to bounce Thursday, but it had no stomach to hold the move, reversing to close lower but still hold above 70/bbl after falling below $68/bbl on the intraday low last week. It is still at the bottom of its 7 month range. Trying to hold there for certain, and you would expect it to hold and bounce there. Oil is as oversold as gold, bonds, and dollars are overbought. All are due a retracement.

http://investmenthouse.com/ihmedia/xoil.jpeg


Gold. Gold was down again, after all deflation worries remain, but losses were curtailed with a recovery off the lows as the chart shows, though that recovery was after hours (1176.70, -11.90 on the close). Gold suffered a fairly precipitous drop: the shift from inflation worries to deflation fears occurred rapidly and we took the rest of our gain in the GLD off the table last week after a very nice run higher and prior gain we banked. Friday finds it tapping the 50 day EMA and bouncing. Similar to the indices, it is set up to bounce. Will it? The deflation fears are likely overblown as the view of Europe's weakness is likely overblown. Thus we anticipate a recovery from gold perhaps starting as early as this week.

http://investmenthouse.com/ihmedia/xgld.jpeg


TECHNICAL PICTURE

INTERNALS

Volume. Volume was mixed, down a fraction in NASDAQ, up a fraction on NYSE, but both holding very strong levels. You would expect strong volume in a volatile time on expiration Friday and that is what you got. Of course Thursday volume was as strong and impressive as Friday. Indeed, Thursday trade was even more impressive as it was part of a dive lower with institutions selling into the close. Thus that downside trade in our view has more meaning than the upside expiration related trade on Friday. Thus volume still suggests downside weakness.

Breadth. At -2.9:1 NYSE and -1.8:1 NASDAQ, breadth was paltry, not nearly showing the kind of strength as the downside. That is suggestive of a relief bounce Friday versus any kind of serious reversal. Not surprising given the circumstances, but even relief bounces can run nicely on weak breadth and volume.


CHARTS

SP500. SP500 gapped lower and sold to just undercut the February selloff low, all in the first few minutes. That brought out the short covering and sparked the move back up. That often happens: the breach of an important support level after a sharp selloff brings about a reversal. Friday that was the case, but it almost gave up the move before a last half hour bounce. The rebound took SP500 back up to the 78% Fibonacci retracement level, but that doesn't mean a whole lot now as the index has given back 100% of the February to April rally. Now we look to see if the third reversal off the lows for the week, this time at a key prior low, can provide the index a continued upside bound back toward the January consolidation lows.

NASDAQ. NASDAQ gapped lower as well and then it too reversed, taking back the May 6 low as well as closing just over the 200 day SMA. As with SP500, the third intraday reversal of the week. Now can it fill the Thursday gap lower and get back over the January high? In good position to do just that, and indeed NASDAQ is at an important long-term support level defined by various points including the December 2004 peak, July to October 2005 consolidation, January, March and July 2008 lows, and October 2009 peak. It indeed looks as if NASDAQ is at a point it can post a credible bounce, particularly given it has put in a double bottom at this support point.

SP600. SP600 held its January peak, gapping below it Friday morning and then staging a solid recovery to gain 1.29%. This puts in a double bottom for SP500 at the January peak. As with NASDAQ, this is a longer term important level: July 2006 low and the January, March and July 2008 lows. Good point to make a stand, and the double bottom formed in May helps.

SOX. SOX improved its position relative to the other indices last week, holding the 200 day SMA for the second time in the month, putting in a 2.5% gain on the session. SP600 is holding a support line running through the September and October 2009 peaks, the January to March 2008 consolidation, the July 2008 low, the September and October 2001 lows, and the September 1997 peak. Impressive company.


LEADERSHIP

The past month finds leadership besieged with even the rally stalwarts such as retail undergoing significant corrections. Not all retail has sold just as other pockets of stocks or individual stocks have held their longer term trends in other sectors. Overall, however, the leadership ranks are quite thinned.

Nonetheless, with the indices hitting key long term support as just discussed, there are key leadership areas, either current or former, that are ready to move higher.

Retail. After that significant connection, is setting up some interesting potential buys. We have stocks such as OSTK, TJX, ARO and others in interesting patterns.

Financial. Some are saying GS bottomed. I don't see any evidence of that in the chart. On the other hand, JPM shot off a long term support point on Friday, prompting us to take our last JPM downside gain off the table. It is also prompting us to look at an upside play there as well.

Semiconductors. With the chips holding important support there are some decent looking chips. LSCC and NVLS are examples.


THE MARKET

MARKET SENTIMENT

VIX: 40.1; -5.69. Gapped higher Friday to 48.20, the highest since the late September selloff. In the range that typically leads to turns in the market.
VXN: 42.81; -3.82
VXO: 37.65; -5.98

Put/Call Ratio (CBOE): 1.32; -0.21. Another session over 1.0 and well over 1.0. The put/call ratio is getting to the point of extremes along with other indicators.

Bulls versus Bears:

This is a reading of the number of bullish investment advisors versus bearish advisors. The reason you look at this is that it gives you an idea of how bullish investors are. If they are too bullish then everyone is in the market and it is heading for a top: if everyone wants to be in the market then all the money is in and there is no more new cash to drive it higher. On the other side of the spectrum if there are a lot of bears then there is a lot of cash on the sideline, and as the market rallies it drags that cash in as the bears give in. That cash provides the market the fuel to move higher. If bears are low it is the same as a lot of bulls: everyone is in and the market doesn't have the cash to drive it higher.

Bulls: 43.8% versus 47.2%. Continuing the drop though not quite as precipitous as the prior week that saw a fall from 56.0%. Looks as if that was the high on this move, falling short of the 60% to 65% considered bearish, but not that short. As with horseshoes, it was close enough. This move started at a low of 35.6% in February, the lowest it has been since July 2009. Over the 35% threshold level below suggesting bullishness. After peaking at 53 on this move the bulls lost some nerve, falling to a new low post- July 2009. Once again bulls peaked out near the 50% level. Bulls have bumped at 50ish since late August 2009, falling to 45ish and then rebounding. Hit a high of 47.7% mid-June on the run from the March lows. Again, to be seriously bearish it needs to get up to the 60% to 65% level.

Bears: 24.7% versus 24.7%. Holding steady after the strong surge higher from 18.7%. Hit a high of 27.8% level on this leg in February. Over 35% is considered bullish for the market; definitely at the lower end of the scale. Peaked near 28% in November, falling short of the 35.6% hit in July 2009. For reference, cracking above the 35% threshold considered bullish. Hit a high on this run at 47.2%. For reference, bearishness hit a 5 year high at 54.4% the last week of October 2008. The move over 50 took bearish sentiment to its highest level since 1995. Extreme negative sentiment. Prior levels for comparison: Bearishness peaked at 37.4% in September 2007. It topped the June 2006 peak (36%) on that run. That June peak eclipsed the March 2006 high (33%) and well above the 2005 highs that spawned new rallies (30% in May 2005, 29.2% in October 2005). That was a huge turn, unlike any seen in recent history.


NASDAQ

Stats: +25.03 points (+1.14%) to close at 2229.04
Volume: 3.314B (-1.21%)

Up Volume: 2.477B (+2.4B)
Down Volume: 843.92M (-2.424B)

A/D and Hi/Lo: Advancers led 1.83 to 1
Previous Session: Decliners led 10.6 to 1

New Highs: 10 (-3)
New Lows: 133 (-28)

NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg

NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg

SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg


SP500/NYSE

Stats: +16.1 points (+1.5%) to close at 1087.69
NYSE Volume: 2.147B (+1.09%)

Up Volume: 2.065B (+2.039B)
Down Volume: 222.787M (-1.874B)

A/D and Hi/Lo: Advancers led 2.91 to 1
Previous Session: Decliners led 10.51 to 1

New Highs: 77 (+10)
New Lows: 160 (-1)

SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg

SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg


DJ30

Stats: +125.38 points (+1.25%) to close at 10193.39
Volume DJ30: 438M shares Friday versus 360M shares Thursday.

DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg


MONDAY

For the third time last week the indices sold off then reversed intraday for either a gain or a significant intraday turnaround to the upside. The prior two attempts failed and failed rather horribly.

This time, however, it will be different, right? We will see. Mondays and Tuesdays after sharp selloffs and then rebounds to end the week can be brutal. Mondays after expiration Friday often go the opposite way. Moreover, this Friday was up not down, and the pattern of late has been down on Friday then up on Monday.

Suffice it to say that the correction is not over; with the indices diving lower Thursday and then again Friday, forging new lows in the selloff it is hard to say it is over. Not over, perhaps, but as discussed with the charts, particularly NASDAQ, SP600 and SOX, there is reason to look for a significant rebound from these support levels, suggesting that maybe the third time is indeed the charm.

Add to that some subsidence in the EU worries given that the EU news is no longer news, and you have the ingredients for a bounce. Markets are not unidirectional indefinitely. There may still be significant downside in this selling. Some suggest that we are in a secular bear market meaning that after this bounce off the March 2009 low and rally into April that another ugly leg down in the bear market is ahead. Given the massive debt remains, the Fed cannot unload its $1.25T in junk assets it bought in the crisis, and must keep printing money to support the economy, they could be right.

So do we don the sackcloth and ashes for Monday? No, we look for the upside. The market will bounce at some point and given the failed attempts after Monday and Wednesday, when it goes it is going to be a shot to the upside. Thus we picked up some BIDU Friday, a stock that can deliver rocket shots upside. There are other stocks that are massively oversold and at support. We will look to play them to the upside as the selling pressure abates and stocks recover in a relief move.

It may not last and the selling may resume: few recoveries are just one drop down and a rebound to new highs. Yes, yes, there is a small double bottom in place, but that is likely not THE bottom to this correction. If it is and we play the upside with strong stocks, we will profit very handsomely. If it is not and we play the relief bounce with strong stocks, we will profit very nicely and then transition to more downside if the move rolls over, making money with puts just as we did on this last leg lower.


Support and Resistance

NASDAQ: Closed at 2229.04

Resistance:
2245 from July 2008 through 2260 from late 2005.
2275 - 2278 from the February 2008 and April 2008 lows
2273 to 2282 marks bottom of January 2010 lateral peak
2292 is a low from January 2008
The 10 day EMA at 2312
2319 from the September 2008 peak
2320 to 2326.28 is the January 2010 high
2324-2370 is a range of resistance from early 2008
2382-2395 from 2008
The 50 day EMA at 2376
2412-2415 represents a series of peaks and lows in 2007, 2008
2434 is the May 2010 high
2453 is the August 2008 peak
2535 is the April 2010 peak
2546 from July 2007, February 2007, November 2007: a level touched many times as a high and low.
2725-2730 from the July 2007 and May 2009 peaks

Support:
The 200 day SMA at 2222
2210 (from September 2008) to 2212 (the July 2009 closing low)
2205 is the November 2009 peak
2185 to 2195 represent support points for years: December 2004 peak, July to October 2005 consolidation, January, March and July 2008 lows, and October 2009 peak.
2177 is a low from March 2008
2169 is the March 2008 closing low (double bottom)
2168 is the September 2009, intraday peak
2167 from the July 2008 intraday low
2155 is the March 2008 intraday low
2100 is the February 2010 low


S&P 500: Closed at 1087.69
Resistance:
1101 is the October 2009 high
The 200 day SMA at 1103
1106 is the September 2008 low
1114 is the November 2009 peak
1119 is the early December intraday high
The 10 day EMA at 1122
Bottom of the January 2010 consolidation 1131 to 1136
1133 from a September 2008 intraday low
1151 is the January 2010 peak
The 50 day EMA at 1154
1156 is the Sept 2008 low
1170 is the prior March 2010 high
1174 is the May 2010 high
1181 is the April selloff low
1185 from late September 2008
1200 from the July 2008 low
1214 is the first April peak, 1220 is the second high.
1240 is the key July 2008 interim low.
1293 from a March 2008 low
1298 is the November 2008 rebound high that made a lower high. Also part of the Q1 2008 double bottom.

Support:
1084 to 1080 (September 2009 peak)
1078 is the October range low
1070 is the late September 2009 peak
1044 is the October 2008 intraday high AND the February 2010 low
1020 is the bottom of the late summer 2009 consolidation
946 from June 2009


Dow: Closed at 10,193.39
Resistance:
The 200 day SMA at 10,262
10,285 is the late December consolidation peak
10,365 is the late September 2008 low
The 10 day EMA at 10,488
10,496 is the November 2009 high
10,609 from the Mid-September 2008 interim low
10,730 is the January 2010 peak
The 50 day EMA at 10,732
10,920 is the recent May high
10,963 is the July 2008 low
11,100 from the 7-08 low
11,205 is the April closing high
11,734 from 11-98 peak

Support:
10,120 is the October 2009 peak
9829 is the September 2008 closing high
9918 is the September 2008 peak
9855 is the early September peak in its lateral range
9835 is the late September 2009 peak AND the February 2010 low


Economic Calendar

These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.

May 17 - Monday
Empire Manufacturing, May (08:30): 19.11 actual versus 30.0 expected, 31.86 prior
Net Long-Term TIC Fl, March (09:00): $140.5B actual versus $40.0B expected, $47.1B prior

May 18 - Tuesday
Housing Starts, April (08:30): 672K actual versus 655K expected, 635K prior (revised from 626K)
Building Permits, April (08:30): 606K actual versus 680K expected, 685K prior (revised from 680K)
PPI, April (08:30): -0.1% actual versus 0.1% expected, 0.7% prior
Core PPI, April (08:30): 0.2% actual versus 0.1% expected, 0.1% prior

May 19 - Wednesday
Core CPI, April (08:30): 0.0% actual versus 0.1% expected, 0.0% prior
CPI, April (08:30): -0.1% actual versus 0.1% expected, 0.1% prior
Crude Inventories, 05/15 (10:30): 0.162M actual versus 1.95M prior
FOMC Minutes: (2:00)

May 20 - Thursday
Continuing Claims, 05/08 (08:30): 4625K actual versus 4600K expected, 4665K prior (revised from 4625K)
Initial Claims, 05/15 (08:30): 471K actual versus 439K expected, 446K prior (revised from 444K)
Leading Indicators, April (10:00): -0.1% actual versus 0.2% expected, 1.3% prior (revised from 1.4%)
Philadelphia Fed, May (10:00): 21.4 actual versus 20.7 expected, 20.2 prior

May 24 - Monday
Existing Home Sales, April (10:00): 5.65M expected, 5.4M prior

May 25 - Tuesday
Case-Shiller 20-city, March (09:00): 2.8% expected, 0.6% prior
Consumer Confidence, May (10:00): 58.3 expected, 57.9 prior
FHFA Housing Price I, March (10:00): -0.2% prior

May 26 - Wednesday
Durable Orders, April (08:30): 1.4% expected, -0.3% prior
Durable Orders ex Trans, April (08:30): 0.5% expected, 3.5% prior
New Home Sales, April (10:00): 425 expected, 411 prior
Crude Inventories, 05/22 (10:30): 0.162M prior

May 27 - Thursday
GDP - Second Estimate, Q1 (08:30): 3.3% expected, 3.2% prior
GDP Deflator - Second iteration, Q1 (08:30): 0.9% expected, 0.9% prior
Initial Claims, 05/22 (08:30): 455K expected,
Continuing Claims, 05/22 (08:30): 4600K expected,

May 28 - Friday
Personal Income, April (08:30): 0.4% expected, 0.3% prior
Personal Spending, April (08:30): 0.3% expected, 0.6% prior
PCE Prices - Core, April (08:30): 0.1% expected, 0.1% prior
Chicago PMI, May (09:45): 60.0 expected, 63.8 prior
U. Michigan Consumer Sentiment, May (09:55): 73.7 expected, 73.3 prior

By: Jon Johnson, Editor
Copyright 2010 | All Rights Reserved

Jon Johnson is the Editor of The Daily at InvestmentHouse.com

Technorati tags: stock trading stock market investing Jon Johnson InvestmentHouse.com

Congress Takes on Credit Companies

SUMMARY:
- Thursday 'normal' pullback trumped by Friday gap lower.
- Solid US economic data, upside European stock gains once again cannot offset rising worries of an EU collapse.
- Rumors of France then Germany dropping the euro continue the fear trade.
- LIBOR continues its climb as EU bailout fails to calm the financials.
- Congress takes on credit companies and your use of cards as the Nanny state grows.
- Retail sales lower but beat expectations with strong revisions.
- Production climbs nicely.
- Michigan sentiment rises once more.
- First we saw mortgage applications fall 9+% and now lumber prices plunge after the home buyer credit expires.
- Stocks rebound modestly into the close: since 2009 down Fridays lead to Monday bounces.
- Gaps continue, gaps get filled, and that gives us the entry point without having to chase the bus.

Downside continues on EU fears even as US data remains solid.

Thursday was a normal pullback in a rather abnormal market condition (as well as a world condition), but Friday the market succumbed more to the abnormal side than the normal side. Stocks opened lower and sold off sharply right out of the gates. Looking at the SPYder chart, stocks were holding up fairly well premarket, though down from the Thursday close. They held up decently, but then as it moved toward the market open, stocks started to tumble. On the open they did in fact tumble hard and continued down sharply into lunch. Then they traded laterally for several hours before a late bounce pushed them back to the upside. There was solid US economic data once again, and even the European stock indices moved higher. That news could not offset the worries about a potential European Union or Euro collapse. There were rumors that France and Germany both feel that they could drop the Euro if it continues to trade down. There are the laggards in the EU, such as Greece, pulling down their currency and their economies along with the laggards. It did not help that Congress was taking on the credit card companies. The Senate was getting deep into just what banks and the credit card issuing companies could do with respect to fees. That left the market susceptible to the same fears we have seen of late. There were the fear trades in other markets such as gold moving higher, oil tanking, and bonds rallying sharply h in the US as a flight-to-safety trade. Of course the US dollar was surging against the Euro and other currencies. Even with that push up late, stocks were still hit hard on the US indices. NASDAQ -2%, the Dow -1.5%, SP500 -1.9%, SOX -3%, SP600 -2%, and NASDAQ 100 -2%. The rebound did help, but it only alleviated a very serious decline once more in the markets.

There were some positives with respect to what the charts did late, and that may figure into what happens Monday. Overall, the bias is down with the chance of a bounce near term. That is a grim scenario, but we will pick it apart later as we look at other markets and the technicals. Of course the dollar was on the front burner again as it has been for the past month. By the front burner, I am not talking about Greece and Europe on fire just using a colloquialism there.


OTHER MARKETS.

Dollar. The dollar surged (1.2372 Euros versus 1.2531 Thursday). Indeed, it jumped through the 1.24s all the way down to 1.23, and it has not been there in a long time. We are looking at 1.11 as a support level for the Euro. If the problems are not resolved and the trillion dollar baby was not able to restore confidence, then we are looking at the Euro and the dollar trading on par. That has not happened since shortly after the Euro was issued. There seems to be no stopping the juggernaut of the dollar right now. It is something of a safety trade versus the Euro and other currencies in the world. Indeed, the DXY0 shows the US versus a basket of currencies, not just the Euro.

http://investmenthouse.com/ihmedia/dxy0.jpeg


Gold. Gold was surging early in the session before it fell back. It actually closed with a slight gain on the session ($1,231.50, +2.30), though it was back and forth into the close. What we have here is a big breakout and a normal pullback. Gold broke above the November and December peak, and now it is coming back to test that same level. That is normal. There is nothing strange about gold coming in with a rather normal test of a prior high. Remember, this surge was the surge that took gold to a new all-time high to end 2009. Now it has broken over that, and look where it came back to test on Friday. It was tapping on the low right at the closing high that was hit back in late 2009. We saw this base setting up, and this was the time to buy. It had a little chop right in here, but a nice rally, and it is making us money. After a little test of this old peak, gold is ready to move again.

http://investmenthouse.com/ihmedia/xgld.jpeg


Bonds. US bonds were on fire as well. The 10 year was smoking on Friday (3.45% versus 3.54% Thursday). It gained strength all session because premarket it was trading at 3.48%. Bold, strong moves as US bonds continue to act as a safe haven for money. That money is fleeing from European bond markets and thus driving European bond yields higher and higher. That is not necessarily a good thing, although if you are having a recovering economy, you typically see yields rise simply because money becomes more valuable. If you have massive debt issues and no real hope of recovering from them, interest rates tend to spike and move toward hyperinflation because the currency and everything in the country is devalued with no bright economic future. Thus we see money flowing into the US bond market when, rationally, it should be moving out of bonds. As the US economy recovers, the Fed would be forced to raise interest rates and therefore push money out of bonds naturally if you can call any Fed action natural. That is not happening because of the fires burning over in Europe.

http://investmenthouse.com/ihmedia/tip.jpeg


Oil. Oil played on the same fear trade as well, plunging down toward the bottom of its range. It was not too long ago that I was talking about how resilient oil was. Looking at a weekly chart, it was able to hold near the top of this range, broke out, and would not sell off. It looked super, but all of that changed in the blink of an eye when Europe started to catch fire. Even the massive spill in the Gulf of Mexico is not impacting the price of oil. It does not amount to much with respect to the European economies tanking and fear of contagion in the EU and beyond. Thus oil took another blast lower ($71.88, -2.52). The one positive is that we should start to see gasoline prices fall in the next week, and that will help us out for the summer. We are also not importing such high-priced inflation anymore. The dollar is stronger; oil is weaker. We are getting the synergistic effect that worked against us as the dollar fell and oil prices rose. We were importing inflation with every barrel of oil and with every tick lower in the dollar. Oil is in trouble. It is skidding right now, and we could (and should) see it try to hold up near the $70 range where it bottomed in December and again in early February of 2010. For now the fear trades are still in full bloom, and I do not see anything to stop them. Maybe the ECB and the EU will come out with a new plan this weekend that tries to bounce the market higher on Monday. Let us face it, though: you have pretty much shot all your bullets when you throw $1T on the table. If that did not stop the bleeding, another trillion will not do anything because no one will believe you.

http://investmenthouse.com/ihmedia/xoil.jpeg



TECHNICAL PICTURE

INTERNALS

Volume. Volume jumped back up 12% on the NASDAQ to 2.5B. Strong session, back above average, but not as strong as some of the others last week where we saw 4B share trades. Volume rose 27% on the NYSE to 1.5B. It is getting back up in that range it was trading when things were really ugly. Of course things were ugly here, and you see downside on rising volume. That shows that the sellers are in control after a pullback on Thursday. It was that ordinary, normal pullback that we were enamored with, but it was turned on its head with higher-volume selling on Friday.

Breadth. Breadth got ugly again after a pretty modest 1.7:1 to the downside on Thursday. It turned to 5.4:1 downside on the NASDAQ and 5.8:1 to the downside on the NYSE. Back to those impressive extremes both in volume and the breadth; that is what keeps this selling alive right now. What happens when things calm down? You get to extremes, and then they calm down. Right now we are not at the extremes we have been at. We still have more to go with respect to breadth and volume indeed, even new highs and new lows. When you look at the new highs and new lows, there are basically no changes going on. Before we get near a bottom, we will see the new lows explode. Remember, we saw almost one thousand new lows when the market bottomed the last time. We will have to see something getting close to those levels. 600 is a good move at that point. 600 gives a good indication you are getting to extremes. You always look for extremes in the market to make the difference and to show that turns are coming. We are not yet seeing extremes when we look at volatility with the VIX, breadth and volume, and when we look at new highs and new lows. Even the put/call ratio was at 1.11. That is good. That is starting to get extreme, but we have to see many, many sessions of that before we get to a turn. We are not there yet.

CHARTS

SP500. There was the volume spike I was talking about. Not quite the level hit last Thursday and Friday, but not a shrinking violet either. Very strong, above-average volume as the sellers came back and pushed the market down. That shows they are definitely in charge. Interesting features: It broke back below the January peak. It also undercut the bottom of that January peak consolidation on the low, but it recovered back above that level by the close. That is a good move. As I always say, support and resistance are ranges; they are never one particular point. On the financial stations they always like to focus on one finite point as being the answer, but that is not the case. Case in point: We have a selloff, we break a key level, but a recovery over this low. We will see if this can lead to a further bounce on Monday back up near the mid-March range and the top of the January peak. If it rolls over there, there is serious trouble for the SP500 and we will be looking for a trade down near the February levels. With the gap lower today, we were not able to get as much of a great trade as we wanted to. We did not want to chase the bus to the downside, so we are going to wait for a bounce back up.

NASDAQ. The charts were not so ordinary and mundane as they were on Thursday, and NASDAQ has a very interesting chart. There was a gap lower after bouncing into the March peak, but look where it held up. It finally made the full test of the January peak; it held it on the low and bounced back. Watch how it tried to hold this level and in fact did on Thursday as it closed back well up off the low. Friday it gapped below it, but then it immediately came back up above it. There were buyers here. There was reason for buying with the trillion dollar baby announced, and now it has come back to test this level. Now it is interesting. There is a bounce up off the January peak that acted as support, and now we will see what happens on Monday. Can it bounce back up and fill this gap from Friday? Can it get back up to the March consolidation range and the recent highs? I am not holding my breath that that will be the case, but we could get a better entry point. After a down Friday, we could have an up Monday that gives a good entry for later in the week when it rolls back over.

SP600. Look where SP600 held. It came down to its 50 day EMA that is roughly coincident with the top of this March and early April range. It bounced off of that level to the close. Not a huge move to regain a lot of lost ground, but it is just the action on the day. Where did it hold? It is not bad. I am not going to complain whenever an index (particularly a leading index such as SP600) holds the 50 day EMA and a peak from March and a low from early April. There is some support here and it held. Now we see if it can continue to hold and bounce Monday and take out this prior lower high. That will be very important for this leader of the market.

SOX. SOX does not look that healthy. Gapping lower, unable to make a big dent on the way back up. It did come back off the lows, but it is right in the middle of no man's land in an ugly pattern. The key will be if it can hold the 200 day EMA again at the other price support. If it can hold there, maybe it can make a double bottom and bounce. A lot will be riding on what NASDAQ and the SP600 do to determine what SOX ultimately does.



LEADERSHIP

Financial. JPM gapped lower on the session, and that took away the new buy that we wanted on it. It also held at the prior low from Thursday, so we have to watch that. We will see how it comes back. WFC is a big credit card issuer, and it was struggling on Friday as well. Indeed, a lot of the credit card issuers were struggling because of what the Senate has passed with respect to regulating bank cards (what they can charge for fees, etc). It is designed to benefit small businesses and individuals. That is purportedly what is happening, and I hope it will work out that way. I am not too sure that will be the situation, but that is the idea. WFC is trading and bouncing up and down in a relatively narrow range. Not getting too much of an impact. On the other hand, MA gapped sharply lower below key levels. That is a breakaway gap, so it is likely to continue lower after that move. That is typically what you see on a breakaway. Once it breaks through an important level on big volume, it usually continues in the direction of the gap. V is in the same situation. There was the gap lower, and I am looking at it as a possible furtherer downside move as well. Big volume through these key levels. Again, a breakaway gap tends to continue in the direction of the break.

Retail. As I said on Thursday, it looked like retail was in the death throes of this current rally. BBBY has rolled over, made a lower high, and it is breaking through the 50 day EMA. It does not look that healthy right now. A bounce back up to test this level where it gapped (as well as that consolidation that it gapped through) would be a good chance to play the stock to the downside toward the consolidation at roughly 42-41. PCLN's price was realigned the past two weeks as it was struggling to hold ground after a stellar run. A series of gaps lower has put it down to the 200 day EMA and a support level a double bottom in early February. It has fallen through this gap level, showing a doji at the 200 day EMA. We will see if it is the kind of play that would make a new run higher, but this is not a well-established trading range yet. They all have to start somewhere, right? YUM had a great run higher. It held at the 50 day EMA and bounced. A lower high, and now it is trying to hold the 50 day EMA again. Maybe it will. This is still not what you would call a great pattern. A lot of the leadership is not in great position now, and it still has work to do to set up.

Metals. FCX bounced nicely off of some support. It gapped lower on Friday with almost everything else, but it did post a nice recovery off those lows. We are playing this for the roll higher. I see a well-defined trading range, and we will see if it can come back. It gets choppy in other moves as it continues higher, so we are letting it work. We will see if it will continue higher after it was down in sympathy with the market.

Healthcare. Medical is acting as something of a safe haven as it always does. RMD is still holding its gains, down just fractionally on Friday. It is basically immune to the selling. ILMN is also holding up and ignoring the selling. They tend to fare better of course, just as medical is considered a safe haven because everyone needs healthcare.

Leadership is highly fragmented. There are some safety areas that are still holding gains, but most of the leadership is suffering from either a correction that is going into a new base, or is in the initial stages of pulling back retailers, for example. They are trying to hold up but are being slowly beat done lower and lower, and that is typical of a correction in the market overall. Leadership thins out, and it is harder and harder to make money to the upside. We just have to take care of our positions and look for opportunity once the correction has run its course. Of course the leaders will have set up earlier and will be ready to move higher before a lot of the other stock are. We will be watching for that, but right now leadership has taken a beat-down overall. It is really just a victim of its success in the run higher before this recent pullback and correction began.


THE ECONOMY

TO VIEW THE ECONOMY CLICK THE FOLLOWING LINK:

http://investmenthouse1.com/ihmedia/Economy.wmv


France and Germany hint they want out.

LIBOR continues its climb.

Lumber prices plunge after homebuyer tax credit expires.

Retail sales lower but beat expectations.

Production, Michigan sentiment solid.



THE MARKET

MARKET SENTIMENT

There are a series of higher lows. There is the spike from Thursday and Friday a week before, then the selloff, and the pullback (given the Monday strength). With the bounce lower in the indices on Friday, there is a gap higher in volatility and a higher low. That is what you would expect as the market sells off. We are not in that serious, deep, terrible correction market where you see rising lows as the stock market hits new highs. We are definitely not seeing rising highs in the stock market; indeed, when the stock market was still making highs VIX was still making lows. That is important. It did make a higher high, but it came back and made a lower low as the market continued higher. It is a big difference. Historically you have higher lows in the VIX and higher highs in the stock index. Then you are in for a very serious correction. More than a correction more like a bear market. That is not what VIX is indicating here, and hopefully it will remain that way.

VIX: 31.24; +4.56
VXN: 31.55; +3.5
VXO: 29.49; +4.18

Put/Call Ratio (CBOE): 1.11; +0.25


Bulls versus Bears:

This is a reading of the number of bullish investment advisors versus bearish advisors. The reason you look at this is that it gives you an idea of how bullish investors are. If they are too bullish then everyone is in the market and it is heading for a top: if everyone wants to be in the market then all the money is in and there is no more new cash to drive it higher. On the other side of the spectrum if there are a lot of bears then there is a lot of cash on the sideline, and as the market rallies it drags that cash in as the bears give in. That cash provides the market the fuel to move higher. If bears are low it is the same as a lot of bulls: everyone is in and the market doesn't have the cash to drive it higher.

Bulls: 47.2%. Now THAT is a drop, falling from 56.0%. That was the high on this move, never making the 60% to 65% considered bearish, but again, with the other factors it was high enough. More bulls than in February. This move started at a low of 35.6% in February, the lowest it has been since July 2009. Over the 35% threshold level below suggesting bullishness. After peaking at 53 on this move the bulls lost some nerve, falling to a new low post- July 2009. Once again bulls peaked out near the 50% level. Bulls have bumped at 50ish since late August 2009, falling to 45ish and then rebounding. Hit a high of 47.7% mid-June on the run from the March lows. Again, to be seriously bearish it needs to get up to the 60% to 65% level.

Bears: 24.7%. Surging higher from 18.7%. Hit a high of 27.8% level on the high of this leg in February. Over 35% is considered bullish for the market; definitely at the lower end of the scale. Peaked near 28% in November, falling short of the 35.6% hit in July 2009. For reference, cracking above the 35% threshold considered bullish. Hit a high on this run at 47.2%. For reference, bearishness hit a 5 year high at 54.4% the last week of October 2008. The move over 50 took bearish sentiment to its highest level since 1995. Extreme negative sentiment. Prior levels for comparison: Bearishness peaked at 37.4% in September 2007. It topped the June 2006 peak (36%) on that run. That June peak eclipsed the March 2006 high (33%) and well above the 2005 highs that spawned new rallies (30% in May 2005, 29.2% in October 2005). That was a huge turn, unlike any seen in recent history.


NASDAQ

Stats: -47.51 points (-1.98%) to close at 2346.85
Volume: 2.517B (+12.36%)

Up Volume: 283.832M (-236.347M)
Down Volume: 2.298B (+566.29M)

A/D and Hi/Lo: Decliners led 5.37 to 1
Previous Session: Decliners led 1.74 to 1

New Highs: 29 (-95)
New Lows: 27 (+11)

NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg

NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg

SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg


SP500/NYSE

Stats: -21.75 points (-1.88%) to close at 1135.68
NYSE Volume: 1.522B (+27%)

Up Volume: 64.733M (-184.111M)
Down Volume: 1.455B (+519.314M)

A/D and Hi/Lo: Decliners led 5.79 to 1
Previous Session: Decliners led 1.81 to 1

New Highs: 84 (-86)
New Lows: 55 (+17)

SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg

SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg


DJ30

Stats: -162.79 points (-1.51%) to close at 10620.16
Volume DJ30: 265M shares Friday versus 202M shares Thursday.

DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg


MONDAY

Heading into Monday and the next session, there are a few factors that will I be paying very close attention to. Number one will be the SP500 and how it holds the bottom of the January peak consolidation. Then, if it bounces, how it is treated by the top of the January peak at 1151. That will be an important move for the SP500 since it has broken down, but it is showing it has some resilience at this particular point at 1135 or so. It can tell the tale for us as to what will happen. If it bounces back to the January peak and stalls, we will be looking to move in for a play down to more like the February low.

That changes somewhat with NASDAQ, although the theme is still the same. It is a downside-looking pattern on SP500, and it is downside looking on NASDAQ as well. Nonetheless, it has held its January peak and bounced off that level. NASDAQ can continue higher and test the March peak as well as the early-week's high. We have to watch for a bounce back up, and then we will see how strong it is and whether it can continue higher. A lot of people will be watching for this. They will say if it breaks through the March consolidation and the last peak hit on Wednesday, then it is clear for a shot higher. It may be for a little bit more, but we have to watch out for the ABC downside pattern. We have the sharp move lower. The A point is down at last Thursday's low, there is the surge back up to the B point, and this could be the C at the January peak. If it bounces back up over this week's peak and stalls out below the April high on this move the rally high then we look for a downside move back to this low as your initial target. That is the ABC down pattern, and it is basically the reverse of the ABC upside pattern. There is a lot to look at with respect to NASDAQ, the SP500, and the SP600.

The SP600 is holding as well at a key level (the March peak and the consolidation in early April), but there are the same issues with respect to NASDAQ. A sharp selloff held the January peak on the low, and that could be the potential A point. The rally back up to Wednesday could be the B point, and then the hold at the 50 day EMA on Friday is the potential C point. If it bounces up between the Wednesday peak and the April peak and turns back over, you look for a trade back down to the Thursday low from just over a week back. That is also coincident with the January peak. You would play the downside on that as well because that would be an ABCD downside pattern. We are watching to see them set up, and it takes a bit of patience. With the market and the indices in these volatile patterns, you have to have a bit of patience right now to let things set up and move. At the same time, you have to be ready to jump into place. Just because it looks like this might set up does not mean it will. It could still bounce up close to that Wednesday peak and roll back over. You could go ahead and initiate some downside positions at that point because it may not make it back up to that pattern. The bias looks like it could be down overall. The SP600 and NASDAQ are a bit stronger with their bounces off of key areas, though. They have made a lower low and a lower high. We will see how it plays out. It is still a situation that would turn into a positive if the money in terms of what the Fed is doing remains in the system. This could still turn into an ABC upside pattern where you have the strong move from February forming your A point in April. B would be the Thursday low of just over a week back. Your C point is at the high on Wednesday, and a further selloff toward the 200 day EMA and a bounce up from there would be your D point and lead to a continuation rally. We just have to see how it sets up. Again, even if you get a bounce to start the week and it rolls back over to make the D point, we can play that to the downside. We can make good money even while we wait for what could be the eventual upside pattern to take root once again.

It could go one way, and it could go the other way. That tells you that the market is in transition and is trying to determine its next trend. We want to play the tradable moves inside those trends as it continues to set up for its next move. We could get downside plays even if it ultimately moves back up. Something that was talked about on a lot of the financial stations was that down Fridays have typically led to upside Mondays; it has been true since the summer of 2009. Of course that was during the liquidity binge that we have seen in the market thanks to the Fed. There is an issue as to whether that will remain now. Although with the EU in flames, the Fed is in no hurry to remove the liquidity. It happened again this past Monday, but it was fueled by the trillion dollar bailout in the ECB. If we do get that same action on Monday, we will look for that bounce and see where it pans out and where it fizzles out. Dare I say that? Again, with SP500, we would be looking at the January peak. If it fades out in this range, we could get a roll back over and we would be looking to play that. It will be the same with the NASDAQ and the SP600. We can make money to the downside even if things move higher ultimately.

It has been a tough couple of weeks, but we have to be patient. We have to let things set up, and when they give us the plays, we take advantage of them. It may be as early as Monday when we are able to take advantage of more plays if we get a bounce up that stalls. It was very frustrating on Friday to have all these plays set up and then have the market gap sharply lower and take those plays out of contention. It is very difficult not to move in those situations, but many times you end up chasing the bus and are always just behind it. Sometimes the market just gaps away from you. Most of the time it does not and you get the plays. As we have all along on this rally actually as it started to turn over we got great plays to the downside. There are times, however, that the pressure builds up, a story hits, and it just gaps away from you. We let it go because gaps either continue or gaps are filled. That is when we move in, and we make great money when that happens. Do not let your frustrations force you into bad decisions with trade entry points. Let us keep the good risk/reward and be patient. I tell you, those gaps will either hold and we can play them as the gaps continue, or they will get filled and we can play them after the fill. Have a great weekend.


Support and Resistance

NASDAQ: Closed at 2346.85
Resistance:

2382-2395 from 2008
The 50 day EMA at 2398
2412-2415 represents a series of peaks and lows in 2007, 2008
2434 is the May 2010 high
2453 is the August 2008 peak
2535 is the April 2010 peak
2546 from July 2007, February 2007, November 2007: a level touched many times as a high and low.
2725-2730 from the July 2007 and May 2009 peaks

Support:
2324-2370 is a range of resistance from early 2008
2320 to 2326.28 is the January 2010 high
2319 from the September 2008 peak
2292 is a low from January 2008
2273 to 2282 marks bottom of January 2010 lateral peak
2275 - 2278 from the February 2008 and April 2008 lows
2245 from July 2008 through 2260 from late 2005.
The 200 day SMA at 2215
2210 (from September 2008) to 2212 (the July 2009 closing low)
2205 is the November 2009 peak
2191 is the October 2009 peak
2177 is a low from March 2008
2169 is the March 2008 closing low (double bottom)
2168 is the September 2009, intraday peak
2167 from the July 2008 intraday low
2155 is the March 2008 intraday low
2100 is the February 2010 low


S&P 500: Closed at 1135.68
Resistance:
1151 is the January 2010 peak
1156 is the Sept 2008 low
The 50 day EMA at 1165
1170 is the prior March 2010 high
1174 is the May 2010 high
1181 is the April selloff low
1185 from late September 2008
1200 from the July 2008 low
1214 is the first April peak, 1220 is the second high.
1240 is the key July 2008 interim low.
1293 from a March 2008 low
1298 is the November 2008 rebound high that made a lower high. Also part of the Q1 2008 double bottom.

Support:
1133 from a September 2008 intraday low
Bottom of the January 2010 consolidation 1131 to 1136
1119 is the early December intraday high
1114 is the November 2009 peak
1106 is the September 2008 low
1101 is the October 2009 high
The 200 day SMA at 1100
1084 to 1080 (September 2009 peak)
1078 is the October range low
1070 is the late September 2009 peak
1044 is the October 2008 intraday high AND the February 2010 low


Dow: Closed at 10,620.16
Resistance:
10,609 from the Mid-September 2008 interim low
10,730 is the January 2010 peak
The 50 day EMA at 10,815
10,963 is the July 2008 low
11,100 from the 7-08 low
11,205 is the April closing high
11,734 from 11-98 peak

Support:
10,496 is the November 2009 high
10,365 is the late September 2008 low
10,285 is the late December consolidation peak
The 200 day SMA at 10,234
10,120 is the October 2009 peak
9829 is the September 2008 closing high
9918 is the September 2008 peak
9855 is the early September peak in its lateral range
9835 is the late September 2009 peak AND the February 2010 low


Economic Calendar

These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.

May 11 - Tuesday
Wholesale Inventories, March (10:00): 0.4% actual versus 0.5% expected, 0.6% prior

May 12 - Wednesday
Trade Balance, March (08:30): -$40.4B actual versus -$40.5B expected, -$39.4B prior (revised from -$39.7B)
Crude Inventories, 05/08 (10:30): 1.95M actual versus 2.75M prior
Treasury Budget, April (14:00): -$82.7B actual versus -$52.0 expected, -$20.9B prior

May 13 - Thursday
Continuing Claims, 05/01 (08:30): 4627K actual versus 4570K expected, 4615K prior (revised from 4594K)
Initial Claims, 05/08 (08:30): 444K actual versus 440K expected, 448K prior (revised from 444K)
Export Prices ex-ag., April (08:30): 1.4% actual versus 0.7% prior (revised from 0.6%)
Import Prices ex-oil, April (08:30): 0.5% actual versus 0.2% prior

May 14 - Friday
Retail Sales, April (08:30): 0.4% actual versus 0.2% expected, 2.1% prior (revised from 1.9%)
Retail Sales ex-auto, April (08:30): 0.4% actual versus 0.5% expected, 1.2% prior (revised from 0.9%)
Capacity Utilization, April (09:15): 73.7% actual versus 73.9% expected, 73.1% prior (revised from 73.2%)
Industrial Production, April (09:15): 0.8% actual versus 0.8% expected, 0.2% prior (revised from 0.1%)
Michigan Sentiment, May (09:55): 73.3 actual versus 73.5 expected, 72.2 prior
Business Inventories, March (10:00): 0.4% actual versus 0.4% expected, 0.4% prior (revised from 0.5%)

May 17 - Monday
Net Long-Term TIC Fl, February (09:00): 40.0 expected, 47.1 prior

May 18 - Tuesday
Building Permits, April (08:30): 680K expected, 680K prior
Core PPI, April (08:30): 0.1% expected, 0.1% prior
Housing Starts, April (08:30): 656K expected, 626K prior
PPI, April (08:30): 0.1% expected, 0.7% prior

May 19 - Wednesday
Core CPI, April (08:30): 0.0% expected, 0.0% prior
CPI, April (08:30): 0.1% expected, 0.1% prior
Crude Inventories, 05/15 (10:30): 1.95M prior

May 20 - Thursday
Continuing Claims, 05/15 (08:30): 4600K expected, 4627K prior
Initial Claims, 05/15 (08:30): 440K expected, 444K prior
Leading Indicators, April (10:00): 0.2% expected, 1.4% prior
Philadelphia Fed, May (10:00): 21.3 expected, 20.2 prior

By: Jon Johnson, Editor
Copyright 2010 | All Rights Reserved

Jon Johnson is the Editor of The Daily at InvestmentHouse.com

Technorati tags: stock trading stock market investing Jon Johnson InvestmentHouse.com

Bounce Monday or Black Monday?

SUMMARY:
- Not a Thursday-like rout, but another significant loss down to the next support level.
- Growth leading to the downside after leading the move upside. That is expected, but it is also something to watch closely.
- Jobs report is solid.
- Bounce Monday or Black Monday? Indices at logical support, in position to bounce: now it depends upon the ECB and if there is a 'phase 2' in the bailout plan.
- Have to watch the February low for the indices and the bond market for the longer term impact WHILE we play what the market is telling us.

Stocks sell, but after Thursday Friday seemed like nothing.

It was a week for the record books and one to tell the grandkids about. Trading glitches hit on Thursday on top of concerns about what is happening in Greece and the EU in general. On Friday the futures were up a bit as the jobs report was better than expected with 390K jobs versus 187K. The prior two months were written higher as well. The unemployment rate bumped up to 9.9% as more people came into the jobs market looking for work. More people who came into the workforce got jobs than did not, so that is a positive. The average workweek also ticked up another tenth of an hour for the third month in a row. There are positives, and the market was trying to put on the best face it could with the early move higher by the futures. Once the market opened, however, it could not overcome the continuing worries about Greece, the EU, and the US system.

If there was an electronic problem yesterday that cascaded upon itself, then that put in a bit of concern with trading. It was not just the fact that that bids were lower coming in; recall there were weird upside spikes as well on AAPL, BID, and other stocks. It was not just the downside seeking the lowest bid by electronic trades. The software was turned on its head, and that created concern about the market and whether the reads could be trusted on Friday. As it turned out, everything worked just fine. The markets just lost ground on the day. It was not a total rout, although there were quite a few downside reads that were beyond anything seen of late. NASDAQ lost 54 points, down 2.3%. The Dow -1.3%, SP500 -12.5%, SOX -1.6, SP600 -2.8, and the NASDAQ 100 -2.34. The losses were concentrated in the growth areas, and they were not minuscule losses. Thus it is not a good read with respect to the US economy. Remember, the growth sectors led the market to the upside with the small cap SP600 doing most of the heavy lifting. Now they are giving it back harder than the others. While that is expected given they are more volatile and since it is a growth area, I want to watch that. If growth turns down sharply and breaks through its support levels, that does not signal good things for the US economy down the road (even though things look good right now based on the reports coming in).

The technical key on Friday was that SP500, NASDAQ, and the SOX all hit the 200 day EMA on the low and they held for the second day in a row. You can even throw the NASDAQ 100 in. It performed similarly with the test of the 200 day EMA intraday and then the bounce off that level. That is a point you would expect it to bounce. That is a logical support level given that many of them have broken that January peak. The next logical level is the 200 day EMA that happens to be coincident with the late-2009 lateral consolidation range. The SP500 is poised to bounce and try to test that January peak or better, but there has been a terribly sharp selloff. It broke through important levels such as the January peak. It is holding at an important level at the 200 day EMA, so it is in position for a relief bounce up to the January peak at 1150. Since it closed at 1110, that is a substantial relief bounce. Whether we get it will depend on what the ECB does this weekend. If it announces that it will follow quantitative measures as was done in the US in 2008 (i.e. buying mortgages and other securities to keep rates low and create a market to support banks and its financial system) then we will definitely get a rebound. That is what the market is looking for. If we do not get it, then we could have a further test down toward the February lows even lower than that. Things could get messy. When there is a selling cascade to end a week with a low close on a Friday, there is often a lower close on Monday and/or Tuesday before there is a reversal and rebound. There is talk of a Black Monday or a Black Tuesday, but we will have to see. I am not convinced that will be the case. Frankly, if the indices come to the February low, that is not any Black Monday or Black Tuesday. It is not that bad; it is really a standard correction after such a strong move upside.

The bottom line is that the market is not finished with this correction. It may get a relief bounce on Monday or Tuesday if the ECB does something to prove it is truly interested in stopping the Greece problem. If not, we still probably have more correcting to go because it was a strong move to the upside that has not corrected much along the way. The key point now is no longer the January peak. I am now looking at the February low because there is a serious issue if the market makes a lower low here. It could hold this level, bounce, and come back to 1150 and roll over again. Then there would be the familiar head and shoulders pattern. Over such a broad time period as that would be, and given the strong move up, that would likely lead to more downside. With a head and shoulders pattern, however, they set up so many times and then pay no mind to it. Again, this has been a long run higher. The ball game is a bit different this time, but near term the market is set for a bounce if it gets the right news. If not, there will be more selling. Either way, we are likely to continue this correction and downside move that will eventually turn into a lateral move if everything holds, i.e., the ECB does what some consider to be the right thing it may not be and goes into quantitative easing.

Looking at an intraday chart, the action was not as wickedly severe as it was on Thursday. The market started off higher, quickly sold off, and it hit session lows mid-morning. It recovered into lunch and then did not have the strength to move higher. It never made it back to the morning high. When that happened, it had lost its juice for the day, but it did not break down. That was a positive. Again, it held above the 200 day EMA after the bounce off it earlier in the day. The late bump higher in the last hour tried to help, but it did not change anything. We still have a market that was beaten down hard but has held at the next logical support level. It is poised to move up or down depending on what news comes out over the weekend or on Monday morning.


OTHER MARKETS.

Dollar. The dollar surged during the week against the Euro and most other currencies, but it lost a bit of ground on Friday (1.2732 Euros versus 1.2615 Thursday). It is worth noting that the dollar-to-euro ratio was near 1.5 just a month ago. You do not see moves like this in the course of a month. You do not see them in the course of a year or even two years. These are incredible moves of course brought about by very palpable fears in the EU. There is nothing wrong the dollar chart other than it is over baked in the near term and rising much too high. When there are such surges, there tend to be moves back down. I do not think it will cause any trouble for the dollar because there is nothing in the picture now to change its reason for moving higher. If the ECB says it will engage in some type of quantitative easing over the weekend, that could change the situation and push the dollar back down in a test of this move. That would not be anything unusual. A test after such a strong breakout is normal, and it would happen with the dollar as well. Markets tend to react the same way whether they are stocks or currencies or what have you. The interesting thing about whether the ECB would engage in quantitative easing goes directly to its mandate. It does not try to balance inflation with maximum growth; its only mandate is to fight inflation. That is why Mr. Trichet is somewhat reluctant to engage in quantitative easing even though the threat really is deflation. I say that even as producer prices in the UK showed there could be inflation picking up. Mr. Trichet is in a difficult situation right now, and I would not want his job.

http://investmenthouse.com/ihmedia/dxy0.jpeg


Oil. Oil was weak yet again, and it broke below the 200 day EMA that many technicians were looking to hold oil up ($75.35, -1.76). Oil has dumped lower this past week on worries of less global demand due to problems in Europe and comments about the economic bubble in China. One prominent Chinese investor said he thought real estate was going to be a bubble near term, and it would be "raining dirt" in China. I am not exactly sure what that means, but I think the gist of it is that there is a bubble, and it is not going to end well. Half of the office space in Beijing is empty, prices are still rising, and speculation is running rampant in the areas outside of Beijing. You can see there is a bubble, and we are going to see serious issues with all of the markets once it collapses. The US will be the strongest economy at that point, and we are pretty fragile as it is with our recovery. Can we withstand it? We will have to see. Interesting times, indeed so goes the Chinese curse. One of the Chinese curses now is that it has had such a strong economy and has a lot of bubbles. We could have trouble when they start popping.

http://investmenthouse.com/ihmedia/xoil.jpeg


Bonds. Bonds actually sold back somewhat on Friday in the US. They spiked for about a month straight. After it broke down in early April it broke right back. The bond market in the US was telling us about the troubles in Europe. At the time it made no sense with the US economy improving and the Fed saying it would have to raise rates and otherwise end its quantitative easing. Bonds should have been selling, but they reversed and rallied sharply. Once again, the bond market was the accurate leader for the rest of us. On Friday the US 10 year closed at 3.42%. That yield was higher than 3.39% on Thursday, and that means t bonds sold. Bonds went from 3.8% into 3.3% in the blink of an eye all because of these issues in Europe. Just as with the other markets, if the ECB comes out with a plan for quantitative easing over the weekend, we could see an interim relief test as the market comes back and has to test this straight upshot when bonds reversed and broke their downtrend line.

http://investmenthouse.com/ihmedia/tip.jpeg


Gold. Gold did not do a lot on Friday according to the chart I am looking at, but the actual finish showed it moving up ($1,209, +12.00) It depends on what market you look at. If you look at the late close on Thursday, that would put gold up only $2.00. You can get confused by what market and what close you look at. The main point is that gold is holding above 1,200. It is bumping up against the prior high, and it may try to retrace ground, regroup, and then move higher. I see no reason gold would not continue to move higher unless the ECB does something near term that brings worries under control. Overall, gold still has upside pressure. It may test and correct near term like the dollar because they both had such strong runs over the past two weeks. Overall, the chart has set out a good base, it is breaking higher, and it looks positive for the upside.

http://investmenthouse.com/ihmedia/xgld.jpeg


TECHNICAL PICTURE

INTERNALS

Breadth. The internals were impressive all week. Breadth on NASDAQ was -3.5:1. Of course it was 6.8:1 to the downside on Thursday. On the NASDAQ, downside was -2.3:1 versus -10:1 on Thursday. 10:1 is what you would call excessive.

Volume. Volume fell to 4B shares on NASDAQ. Still massively high trade. Volume was flat on the NYSE at 2.1B shares. No wallflower there either. There is still heavy selling of stocks, and the market is under distribution. At some point it gets to a level where, even though they are selling on high volume, the high volume starts to be your friend. If it comes down to an important level and there is high volume and it is holding, that shows the buyers are stepping in and supporting a stock or index at that level.


CHARTS

SP500. SP500 undercut the 200 day EMA on Thursday but rebounded. It sold further on Thursday, but it held the 200 day EMA and rebounded, but look how strong the volume remained on the NYSE. There is something keeping the index here, and it is basically a "look and see" out to next week. We will see whether the ECB takes actions that investors consider beneficial. If they do not, then this support might evaporate at this level. But we see this on individual stocks, so there are buyers here at support who are propping it up at the 200 day EMA.

NASDAQ. NASDAQ is in the same technical situation as the SP500. There is the reach down toward the 200 day EMA and the recovery. Still above the February low, but now it is below the January peak as well. It is in position to bounce up and test the 2325 level that is the January peak. After that it might come back down and test the February low. As noted with the SP500, that will be the key move. If it makes a lower low after this pretty sharp selloff in January and February, you have the makings of a potentially much larger drop.

SOX. SOX also held the 200 day EMA and bounced. Its January peak becomes key as it make it is bounce. Same situation, same technical pattern. Its growth is showing a similar problem though as the more staid and stodgy SP500.

SP600. SP600 is another growth area, and it lost 2.8%. It did not have the same snap back, but is not in the same problems that the other three indices find themselves in, i.e. down at the 200 day EMA. SP600 is still well above that level; indeed, it is holding above the January peak. That puts it in a whole different technical ballgame. In other words, it is in a much stronger position. It tapped that level on Thursday and recovered. This is still a key point for the small caps as they test next week. They are in a perfect position to bounce as well. They are not down at the 200 day EMA, but they are at the January peak. Perfect position to bounce back up and test this range anywhere from mid March up to maybe the early April consolidation levels.


LEADERSHIP

Metals. Thursday FCX reached lower and bounced, and I did not know how much to discount this move lower. On Friday it moved lower again and undercut the January and February lows, but it rebounded to hold this level again. That shows that the Thursday move was not just in the weeds that shows the buyers are stepping in. After it sold off in its range, it is holding the same support level and is ready to bounce as well. BHP is the same story. It sold off hard, and it undercut the previous low in February in its range (and even the one way back in November and December of 2009). Then it rebounded and held that level on the close on Friday. It is in position to make a run back up and its range as well. This goes on for others. We have some downside plays we made money off of. X has come down to the 200 day EMA just as the indices have. It is a very similar pattern, and it is holding and bouncing off that level. We have taken some gain. If it continues higher, we will close it, but it gives you a chance to play a move up to the 67.5 range. If you look at the XME, one of the ETFs, it is a similar story. It has come down to a support level. You can see the old peaks and areas that it has tried to hold in the past, and it is bouncing off of that level as well as the rising 200 day EMA. We made good money on this. If it starts to break higher, we have to close that one and maybe play to the upside. There are four potential metals plays that are basic rolling-in-the-range type of plays that you can play for a bounce if the market gives a bounce to the upside.

Technology. Technology has been a leader of late, and now it is under pressure. AAPL rebounded nicely on Thursday, but Friday it was down because NOK is suing AAPL for patent infringement with respect to the iPhone and iPad. AAPL has been beating the pants off of NOK, and I wonder if NOK will even survive. It is trying to make a survival move in suing a competitor. That is when you know they are in trouble, when they start lashing out with lawsuits. If you look at NOK's chart, it is different from AAPL. Its earnings faded when it announced, and it gapped sharply lower in a breakaway gap. In fact, it looks like something that rhymes with "gap," but it is holding above an old low back in March of 2009. Of course that was the selloff low. It has done absolutely nothing during that period a nowhere stock going nowhere in a hurry. AKAM is holding up nicely and filling the gap. It looks like it might be ready to move if the market is ready to move. Then you have a stock like SNDK. It sold down more but it held the 50 day EMA and still looks like it wants to move up. GLW is showing the same kind of pattern the metals are. We made money to the downside on this one. If it holds and starts to bounce, we close it out on the downside, take the rest of the gain, and then play it for a move to the upside. That is a pattern we will see a lot of after such a rapid decline.

Energy. Energy is getting clobbered. The big multinationals such as CVX were holding up while many of the smaller or independents were selling off. Now even the larger multinationals are cracking and breaking down at this point.

Retail. Retail has been a leader, but it is under pressure right now. BBBY broke below its 50 day EMA on Thursday. It could not recover it that day or on Friday. It is at support so it could make a bounce, but it does not have the kind of trading range were it sold off and is ready to bounce. It has not set up that kind of pattern yet. You could argue it is an ABCD, but it would be a thin argument. PNRA broke its uptrend. It was trending higher, and then it smacked right through it over a week ago. The trend is broken, and it will come up and kiss that trend. It will make the bounce up, and the nimble traders can trade this move back up to the trendline. You want to play it if it breaks down from there. There are two possible plays in opposite directions. When it gets up to this trendline or resistance level, that is where it will probably have trouble. ANN reported good earnings the other day and gapped higher, but it could not make a definitive new high. MACD was unable to make a new high as price did, and it rolled down immediately after reporting earnings. The tank is empty, and the question is whether it will hold just above the 50 day EMA. It is still in its uptrend, but it is in a fight to keep the uptrend alive.

Financial. GS did not have a great week, although it finished up on Friday. It is below a key resistance level, and it gapped down below that level unable to recover it on the rebound. It does not look good. JPM is one that has been a foil to GS, but it has sold off as well. It made us money to the downside, and I still think it could come lower toward the February low and make a lot more money for us down at 37 or so. It closed at almost 41. That would put more bling in the account if there is a downside move to start Monday. WFC is struggling. It had a double top and broke lower, coming back to kiss the 50 day EMA that it broke on Thursday. It may be coming down, but there is not a lot of room. There is a lot of support at the 28.5 level, and we would not want to short WFC right here. Even the regional banks were not doing well. They were some of the strong ones as the market moved up. EWBC broke its short term trend as well as the 50 day EMA. Looks to be heading lower to test down to the consolidation range in late 2009.

Leadership is down across the board, but there are plays out there to the upside if the market gets the news it wants. It is poised to make a bounce, and if they can bounce, there are many stocks (metals, techs) that are ready to make a bounce higher. We can play them to the upside and make money near term.


THE ECONOMY

Please view the Economy video at the following link:

TO VIEW THE ECONOMY CLICK THE FOLLOWING LINK:

http://investmenthouse1.com/ihmedia/Economy.wmv


THE MARKET

MARKET SENTIMENT

The VIX was up 8 points on Friday, and that is another 25% move. It basically took out the high hit on all of the Thursday worry. Even though the market was not totally slaughtered with respect to losses although they were not small the VIX still shot higher. Looking at a weekly chart, it definitely has broken its downtrend. It has surpassed the late 2009 and the January-February 2010 spikes. Those were just road bumps in the overall rally off the late 2008 and early 2009 lows. This is a significant trend break, so there is obviously something more serious ongoing now. The correction has already taken out the February peak on VIX, but the SP500 has not taken out the February lows. That tells us there is likely more selling to come to at least test these levels. That will be the next key, and that is why I was focusing on it earlier. Without a doubt, volatility is spiking, and that is what one would expect. Options prices have gotten very expensive. Looking at the volatility, it has even taken out the interim highs in 2008. The next peak is in early 2009 this is where the market bottomed and started back up. Again, this is not your ordinary selloff. This is something more severe and somewhat expected after the type of run we saw in the stock market.

VIX: 40.95; +8.15
VXN: 41.52; +10.27
VXO: 38.94; +7.82

Put/Call Ratio (CBOE): 1.22; +0.2


Bulls versus Bears:

This is a reading of the number of bullish investment advisors versus bearish advisors. The reason you look at this is that it gives you an idea of how bullish investors are. If they are too bullish then everyone is in the market and it is heading for a top: if everyone wants to be in the market then all the money is in and there is no more new cash to drive it higher. On the other side of the spectrum if there are a lot of bears then there is a lot of cash on the sideline, and as the market rallies it drags that cash in as the bears give in. That cash provides the market the fuel to move higher. If bears are low it is the same as a lot of bulls: everyone is in and the market doesn't have the cash to drive it higher.

Bulls: 56.0% up from 54.0%. Highest on this move and it coincided with problems elsewhere. Still below the 60% to 65% considered bearish, but again, with the other factors it was high enough. Many more bulls than in February, but they are not running away with the market and thus the market continues to rally. Not that this is a 'Green Zone' of safety; it is a level that can still spark a selloff as seen early this year. This move started at a low of 35.6% in February, the lowest it has been since July 2009. Over the 35% threshold level below suggesting bullishness. After peaking at 53 on this move the bulls lost some nerve, falling to a new low post- July 2009. Once again bulls peaked out near the 50% level. Bulls have bumped at 50ish since late August 2009, falling to 45ish and then rebounding. Hit a high of 47.7% mid-June on the run from the March lows. Again, to be seriously bearish it needs to get up to the 60% to 65% level.

Bears: 18.7%. Rising from 18.0% as the bears were worried more even as bulls turned more bullish. A pretty sharp decline in bears, well off the 27.8% level on the high of this leg in February and heading toward the 15% level that is bearish for the market. Over 35% is considered bullish for the market; definitely at the lower end of the scale. Heading back toward the 16%ish on the lows of the leg where it held for several weeks. Peaked near 28% in November, falling short of the 35.6% hit in July 2009. For reference, cracking above the 35% threshold considered bullish. Hit a high on this run at 47.2%. For reference, bearishness hit a 5 year high at 54.4% the last week of October 2008. The move over 50 took bearish sentiment to its highest level since 1995. Extreme negative sentiment. Prior levels for comparison: Bearishness peaked at 37.4% in September 2007. It topped the June 2006 peak (36%) on that run. That June peak eclipsed the March 2006 high (33%) and well above the 2005 highs that spawned new rallies (30% in May 2005, 29.2% in October 2005). That was a huge turn, unlike any seen in recent history.


NASDAQ

Stats: -54 points (-2.33%) to close at 2265.64
Volume: 4.054B (-9.05%)

Up Volume: 371.699M (+101.473M)
Down Volume: 3.728B (-456.29M)

A/D and Hi/Lo: Decliners led 3.45 to 1
Previous Session: Decliners led 6.83 to 1

New Highs: 19 (-44)
New Lows: 85 (-92)

NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg

NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg

SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg


SP500/NYSE

Stats: -17.27 points (-1.53%) to close at 1110.88
NYSE Volume: 2.146B (+0.11%)

Up Volume: 358.629M (+250.291M)
Down Volume: 2.047B (-421.429M)

A/D and Hi/Lo: Decliners led 2.33 to 1
Previous Session: Decliners led 10.1 to 1

New Highs: 78 (-74)
New Lows: 98 (-346)

SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg

SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg


DJ30

Stats: -139.89 points (-1.33%) to close at 10380.43
Volume DJ30: 428M shares Friday versus 495M shares Thursday.

DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg


MONDAY

Next week starts anew, but we have the same old problems confronting us: What happens in Greece and the EU juxtaposed against the US economic strength. There are not too many reports out next week that will make a lot of difference to the market. There will be the usual initial claims, but that is on Thursday. On Friday there are some sentiment claims as well as retail sales. That will be something to take into consideration and there will be a market impact, but that is later in the week. Again, what will push the market is what the ECB does (if anything) over the weekend or on Monday. Stocks are poised to make a move higher. SOX, SP500, SP600, and NASDAQ are all sitting above a logical support level and are in position to bounce after a sharp selloff. It is just whether they get the trigger to make the move to the upside. If they do, we will definitely have stocks we can play on the bounce. We can let other stocks that we have upside recover (we have a few left) and use that as an exit point. That is the risk we took on Friday closing stocks that did not recover a support level. If there is more selling on Monday, then the bottom would drop out on them. We run the risk that they could bounce up on Monday, but I was willing to take that risk given the alternative.

After we get a bounce higher and it could last a couple of days then we may get a turn back down when the indices reach the key levels I was talking about. That would be up at the January peak on NASDAQ, the SP500, and even the SOX. Once it hits those levels, it may turn back down and sell. If it starts to stall, we will put some downside plays on the report again to take advantage of them after they have bounced back up just as the indices have to test a resistance level and fall. You could play the SP500 or the NASDAQ to the downside at that point with a variety of plays and tools: The SQQQ, the QID, QQQQ, or short the NASDAQ 100. There are many things you could do, and many different things to do with the other indices as well. Not the mention individual stocks that would be ready to roll over that have bounced back up to resistance. If we get the move higher, that is great and we can use it as I have outlined. If we do not get that and the market moves lower... then it moves lower. It is not in a position to short further right now because it has sold down to a support level. If it breaks that level and makes a quick run down to the February lows, that is where the next key is. That is where it gets interesting once more to see if there is a bounce and recovery. That would be the telltale point for the market. If the indices break below that level, that would spell a lot of trouble to the downside. But we have to be careful not to get sucked into the old idea that once they break a level that they are necessarily heading lower. How many times do you see a stock breech another level but then recover it and move back upside? That is what we look for in reversal plays like in BHP. Look how it broke through support on Thursday, broke through it again on Friday, but it has recovered it. If it continues upside, it has a high probably for a move to the upside. Just because SP500 or NASDAQ would break below the February low, it is not a guarantee it will continue downside. Indeed, we should watch and be patient. We let that move play out and they will typically come up and test. They will either test and fail, or they will recover and move higher. Given the downside to this point, you would anticipate that if they got down to the February low and broke it, that they would recover because this is a massive drop. It takes something very serious to continue that kind of drop. That would mean the investors would have turned against the US economy's recovery and anticipate that the recovery would fail and turn back down later in the summer.

If you recall, back in the spring when there were signs of recovery, I said that it looked like we would have a recovery. There was no doubt we were having a recovery off of the prior lows, but our worry would be at the end of the summer (and now I have to say even into the early part of fall since the recovery has been strong). We have to be worried if the market breaks down below the February lows and recovers near term but then gives it back up. That would be very important as an indication to what the US economy would do down the road and that would be following Europe. That is not a good prognosis, but we are not there yet. Remember, there is still plenty of momentum in the US economy right now. We saw it with the numbers all week long, including the just jobs report on Friday. There is momentum to keep things going for a couple of quarters, but the market will lead the economy. If it is going to turn down, the market will lead, and the bond market as well. We need to keep an eye on the bond market and what it does. I have been watching the TIP chart, and it broke its trend. Now we will see what it does after it tests. Bonds and stocks lead, and bonds are typically right. Stocks eventually come around and are right, but bonds are the ones to take our first lead from.

The market still has a lot of work to do, and it is still in trouble right now. It is still in a normal correction however, and we do not want to jump to conclusions. We made a lot of gain on the upside. We helped ourselves a lot by taking a lot of it off the table before and during the earnings season. With new positions we took partials, and if they have not panned out (some of them have not on the selling) then we do not get hurt too badly and get rid of them. We have made a lot of downside gain as well. I think we will make more downside gain after a possible interim bounce that we look to make some upside gain on. We are still in a correction and have to play accordingly. At this point, it has not shown that it will be anything worse than just a correction, so we just watch the signposts for the market. We take what the market gives, and if it looks ugly, we take to the downside again. We just play the market and do not worry as much about what happens. Yes, it is worrisome out there, but we make money in the market to help insulate us from what happens down the road. I hope you have been buying gold. I cautioned you to put some of your money in hard assets, and gold has worked out well. Take some of your profit and put it there, but not right now. Let it come back. It has hit 1,200 and will probably test. After it tests, we will probably be buying more options on the GLD. That would be a good time to buy more of the hard stuff as well.

These are interesting times, but we have made a lot of money. We will continue to make good money if we keep our heads on and are smart. We are all smart, and you are ahead of the game by being here. You are going to make money just as you have been making money, and that is how you stay ahead of these trying times. Indeed, we will have trying times to come, I am afraid. Again, keep your head, do what the market tells you to do, and you will come out ahead. Have a great weekend.


Support and Resistance

NASDAQ: Closed at 2265.64
Resistance:

2275 - 2278 from the February 2008 and April 2008 lows
2273 to 2282 marks bottom of January 2010 lateral peak
2292 is a low from January 2008
2319 from the September 2008 peak
2320 to 2326.28 is the January 2010 high
2324-2370 is a range of resistance from early 2008
2382-2395 from 2008
The 50 day EMA at 2401
2412-2415 represents a series of peaks and lows in 2007, 2008
2453 is the August 2008 peak
2535 is the April 2010 peak
2546 from July 2007, February 2007, November 2007: a level touched many times as a high and low.
2725-2730 from the July 2007 and May 2009 peaks

Support:
2245 from July 2008 through 2260 from late 2005.
2210 (from September 2008) to 2212 (the July 2009 closing low)
2205 is the November 2009 peak
The 200 day SMA at 2205
2191 is the October 2009 peak
2177 is a low from March 2008
2169 is the March 2008 closing low (double bottom)
2168 is the September 2009, intraday peak
2167 from the July 2008 intraday low
2155 is the March 2008 intraday low
2100 is the February 2010 low


S&P 500: Closed at 1110.88
Resistance:
1114 is the November 2009 peak
1119 is the early December intraday high
Bottom of the January 2010 consolidation 1131 to 1136
1133 from a September 2008 intraday low
1151 is the January 2010 peak
1156 is the Sept 2008 low
The 50 day EMA at 1167
1170 is the prior March 2010 high
1181 is the April selloff low
1185 from late September 2008
1200 from the July 2008 low
1214 is the first April peak, 1220 is the second high.
1240 is the key July 2008 interim low.
1293 from a March 2008 low
1298 is the November 2008 rebound high that made a lower high. Also part of the Q1 2008 double bottom.

Support:
1106 is the September 2008 low
1101 is the October 2009 high
The 200 day SMA at 1096
1084 to 1080 (September 2009 peak)
1078 is the October range low
1070 is the late September 2009 peak
1044 is the October 2008 intraday high AND the February 2010 low


Dow: Closed at 10,380.43
Resistance:
10,609 from the Mid-September 2008 interim low
10,730 is the January 2010 peak
The 50 day EMA at 10,826
10,963 is the July 2008 low
11,100 from the 7-08 low
11,734 from 11-98 peak

Support:
10,496 is the November 2009 high
10,365 is the late September 2008 low
10,285 is the late December consolidation peak
The 200 day SMA at 10,192
10,120 is the October 2009 peak
9829 is the September 2008 closing high
9918 is the September 2008 peak
9855 is the early September peak in its lateral range
9835 is the late September 2009 peak AND the February 2010 low


Economic Calendar

These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.

May 03 - Monday
Personal Income, March (08:30): 0.3% actual versus 0.3% expected, 0.1% prior (revised from 0.0%)
Personal Spending, March (08:30): 0.6% actual versus 0.6% expected, 0.5% prior (revised from 0.3%)
PCE Prices - Core, March (08:30): 0.1% actual versus 0.1% expected, 0.0% prior
Construction Spendin, March (10:00): 0.2% actual versus -0.3% expected, -2.1% prior (revised from -1.3%)
ISM Index, April (10:00): 60.4 actual versus 60.0 expected, 59.6 prior
Auto Sales, April (14:00): 4.2M expected, 4.3M prior
Truck Sales, April (14:00): 4.6M expected, 4.8M prior

May 04 - Tuesday
Factory Orders, March (10:00): 1.3% actual versus -0.2% expected, 1.3% prior (revised from 0.6%)
Pending Home Sales, March (10:00): 5.3% actual versus 5.0% expected,

May 05 - Wednesday
ADP Employment Change, April (08:15): 32K actual versus 30K expected, 19K prior (revised from -23K)
ISM Services, April (10:00): 55.4 actual versus 56.1 expected, 55.4 prior (no revisions)
Crude Inventories, 05/01 (10:30): +2.75M actual versus 1.96M prior

May 06 - Thursday
Continuing Claims, 04/24 (08:30): 4594K actual versus 4600K expected, 4653K prior (revised from 4645K)
Initial Claims, 05/01 (08:30): 444K actual versus 440K expected, 451K prior (revised from 448K)
Productivity-Prel, Q1 (08:30): 3.6% actual versus 2.4% expected, 6.3% prior (revised from 6.9%)
Unit Labor Costs, Q1 (08:30): -1.6% actual versus -0.5% expected, -5.6% prior (revised from -5.9%)

May 07 - Friday
Unemployment Rate, April (08:30): 9.9% actual versus 9.7% expected, 9.7% prior
Nonfarm Payrolls, April (08:30): 290K actual versus 187K expected, 230K prior (revised from 162K)
Average Workweek, April (08:30): 34.1 actual versus 34.0 expected, 34.0 prior
Hourly Earnings, April (08:30): 0.0% actual versus 0.1% expected, -0.1% prior
Consumer Credit, March (15:00): $2.0B actual versus -$3.9B expected, -$6.2B prior (revised from -$11.5B)

May 11 - Tuesday
Wholesale Inventories, March (10:00): 0.5% expected, 0.6% prior

May 12 - Wednesday
Trade Balance, March (08:30): -$40.0B expected, -$39.7B prior
Crude Inventories, 05/08 (10:30): 2.75M prior
Treasury Budget, April (14:00): -$20.0B expected, -$20.9B prior

May 13 - Thursday
Initial Claims, 05/08 (08:30): 440K expected, 444K prior
Continuing Claims, 05/08 (08:30): 4590K expected, 4594K prior
Export Prices ex-ag., April (08:30): 0.6% prior
Import Prices ex-oil, April (08:30): 0.2% prior

May 14 - Friday
Retail Sales, April (08:30): 0.2% expected, 1.9% prior
Retail Sales ex-auto, April (08:30): 0.5% expected, 0.9% prior
Capacity Utilization, April (09:15): 73.8% expected, 73.2% prior
Industrial Production, April (09:15): 0.6% expected, 0.1% prior
Michigan Sentiment, May (09:55): 73.5 expected, 72.2 prior
Business Inventories, March (10:00): 0.4% expected, 0.5% prior

By: Jon Johnson, Editor
Copyright 2010 | All Rights Reserved

Jon Johnson is the Editor of The Daily at InvestmentHouse.com

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