Stock Market Viewpoint

Stock Market Viewpoint
Reading the Tea Leaves...

Monday, July 19, 2010

They are trying to turn it...

I would first like to mention the bull and bear pressures of the market as of this past Friday.

On the S&P 500 index: the bearish case first- the critical monthly bars 5/10 test started to barely slip through late Friday afternoon. On the weekly chart and the daily chart both, the 50 started to turn the 5 EMA down causing it to fall down from the upper line of the descending channel Friday. This put us at an extremely dangerous pivot point on the indexes.

On the bullish side, Friday's selloff did not damage the 13/43 setup on the quarterly bar chart and also the weekly bar chart. Also we are still within updraft range of the daily 324 EMA. Friday's close left the only chance of preventing a new down leg in the market to be if the powers that be can drag the market up steadily all day today to produce the key Daily bar 5/10/21 retest, the building block of turning the market back up.

Today while it was really choppy they did manage to show the start of the 5/10 daily but the 5/21 is going to need 2-3 days of steady upward movement before any of the professional traders will buy into it. Today's rally was on low volume which tells us that there is much doubt as to whether there will be follow thru to the upside.

On the SSO (S&P 500 2x leverage trading ETF) today's volume was only 14.6m versus its average daily volume of 23.1m. If this is the beginning of a true upside turnaround, the SSO volume would have to get above average really quickly or the upward movement will just attract new shorts into the market. On the options side of the SSO, the first out of the money call, the August $35, has gained considerable open interest on the call side today. Tonight's closing numbers show 3,990 calls versus 1,770 puts which means the options players think they smell a short squeeze coming.

All of the intraday start signals that professionals use were setup quite nicely in the last hour of today's trading but most traders seem to be in the "show me" state of mind and will probably feel like it would be safer to get in a little late than catch the first ticks and run the risk of being sideswiped by bad economic news coming across the newswires in the morning. This week could easily have a good deal of bad economic numbers show up.

While my main three bullish ETFs: SSO, QLD, and FAS - all three printed nice bullish reversal hammers on the daily candles, I feel like it's too risky of an entry point until the average daily volume starts confirming the upward move if it does indeed get going. Right now all the market indexes are very vulnerable at this point.

My main three bearish ETFs: SDS, QUID, & FAZ - did not gain much open interest in their calls which is bullish on the market.

On my favorite four big cap stocks: AAPL GOOG AMZN RIMM - AAPL has no "technical" reason to turn up right here but if the markets rally, its somewhat broken daily chart will be forgiven because it's such a trader favorite. GOOG started the day trying to set up a Day 5/21 but in the last 30min before the bell there was a minor intraday breakdown so we will see. AMZN is actually positioned the best both midterm and short-term and it is also working the Daily 5/10/21 retest up thru the 50. RIMM has been a nearly perfect 30 degree down channel for the past 3 months & this stock loves to run on down channel breakouts as it will attempt to do in the next couple of days if the market turns. It also is set up the best on intraday signals & Friday's selloff did not lower the On Balance Volume any which will give it minor upward push OBV divergence. Also on RIMM, I'm sure all traders have been watching that huge symmetric triangle that is has nearly come to a point on the quarterly bars chart.

This week the markets are at as big of a pivot point as they were back in Aug '08 but one has to believe that they know they cannot let this market fall at this juncture, it would be a severe blow to the very delicate economic situation we are in right now.

My feelings at this point are that they will manage to turn the market up but there will be some bull/bear fist fights during the next couple of weeks. Hold your breath that we don't get any really bad economic news this week that could easily pull the rug on this upturn attempt.

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