Saturday, February 26, 2011

S+P 500 Market Update.

The S+P did indeed drop into our price zones discussed this week. We saw a relief rally occur during Friday's day session. Question is was it just an oversold bounce or something more?

One thing we have to keep in mind is the type of resistance we are up against in the short term. The top chart above shows the weekly chart of the NASDAQ, as you can see we came into the top of the trading range dating back to 2007. The middle chart shows the small caps (Russell 2k), also up against some tough resistance levels coming in at all time highs. So we must keep this in mind as this could end up warranting a deeper size retracement.

The bottom chart shows the S+P 500 futures 4hr, we are inside a measured move long taken from 1/30/11 's low to the 1343 high. Market has paused and began to rally here, I am going to use that low that we created this week as my bull/bear line in the sand for the short term. Above we are coming into resistance, I am looking to see if 1323 - 1330 will hold. If so look for a drop into the 1270 area to follow. If bulls can break 1330 new highs will likely follow shortly thereafter.

In either event I expect to see new highs in this market by April/May, with a high of at least 1360- 1380 before this bull trend is over and done with.

Where are Oil prices headed????

Is what I have been asked quite a few times this week. With all the news coming out of the middle east, a fundamental shift pushed fair value of Oil prices above the $100 level for the first time since Mid 2008. So where do we go from here?

The chart above shows a weekly chart of Oil futures continuous contract over the last couple of years. The retracement levels above show resistance, below are dynamic support. In the near term (within next 2-3 years) I am leaning on the above levels to act as resistance to take us back into at least the 50% retrace level long setup coming in at the $65 - $60 level with a chance of even falling into the $50 price level.

While there is a chance of going up to test the $120 price level to attract sellers, I see that as a remote possibility as of right now. The action in the USD dollar this week tells me that the concern level is really not there at this point in time at least.

To be clear though I do think commodities in this environment are an excellent choice for the long haul. But these have all had quite the run in the last few years and to establish new positions at these price levels is extremely risky. Wait for the market to come back to you.

Tuesday, February 22, 2011

35pt drop in the making.

The markets may be reacting to some of the news out there, pre-market trading yesterday and overnight today have dropped the SP futures back into previous trading range. Albeit on very low volume. This sets up for some great trading opportunities this week. I will be watching 1326 for today's trade, bullish above/bearish below.

But for the IT picture here is what I am looking at, the biggest drop we have had on this run up came on the first test of the 1300 area, it produced a 37.50pt reaction and put in a low in the 1260's area before taking off on a 80 point rally.

I will use the pattern of repetition for this and look for an eventual bottom in the 1303 - 1308 area, which is also a 50% retracement level of this measured move higher. Followed by an equal sized rally which should take us into the 1380 - 1390 area by April.

Sunday, February 20, 2011

2-18-2011, Neutral Extreme Day, bulls win again!

Going into Options Expiration Friday I was anticipating slow choppy price action. We opened inside Thursday's trading range above the Volume point of Control and open gap. Sellers came in quick off the open but not very strong, as the market moved down to fill its gap, return auctioned back above the opening price signalling caution for the shorts.

An Initial Balance was formed that was 2.75pts in length confirming the OTF was inactive, also confirming that IB low and high was in jeopardy. As we continued with our vertical price discovery to new yearly highs taking out the IB high, return auctioned back below the IB low no doubt taking out bull stops in the process.

We then have a confirmed Neutral Day Type as both IB high and low were taken out, question was where would it close, inside the IB or in either one of the extremes.

Well we got our answer during the last 1hr of trading as the OTF either by short covering or establishing new long positions were strong into the close. Thus making this a Neutral Extreme day type.

We have a long weekend this week and have to see where price opens on Tuesday, but as of now this sets up for more bullish activity in the overnight session but the two way buy/sell activity coupled with the divergence in the NASDAQ points to some potential weakness.

We have heavy price acceptance in the 1339 area which is key level to pay attention too on Tuesday. Also 1333 on the downside as well.

Friday, February 18, 2011

SP 500 Future upside targets, Key Lines in the Sand

Key Upside targets on the SPX coming soon, 1360 (Green horizontal line) represents the approximate equivalent perecntage gain matching the bull market of 2003-2007 off March 2009 lows, this target will be reached by April if not much sooner. The 1475 level (2nd Green Horizontal Line) matches the 800 pt rally in the SP 500 that the 2003-2007 bull market also produced.

However there is no way to predict the future, longs should be in a position to sell/ scale out of there positions at these levels and NOT be taking on new positions. Monetary policy with QE's is king right now, as long as the US dollar is falling and 10 yr yields rising we won't see any historic market collapse regardless of all the news or what I like to call "noise" out there.

We are at a crossroads here with the Nasdaq nearing its 2007 high and the Russell 2k getting close to it's all time high. If the market can not break above 1475 and puts in a lower high, we are headed for 450 on the SPX most likely putting in the final bottom. I see this scenario as unlikely at the moment, as inflation and possibly hyper inflation will be seen before a major deleveraging event will occur.

All the best.