Not much has changed since my last ‘Market Thought’ post, except Friday’s action consolidated the market more, and the Retail index (RTH) is now oversold and sitting on support.

All in all, there maybe a possability that the SP500 can move to actually touch the 200SMA. However, the underlining weakness remains with the high momentum being broken.

Adding to my gut telling me ‘no’, is the price of oil. I am just not a fan at the moment. I am expecting it to retest the high 40s, and IMO, as goes oil… so goes the market.

My caution is also coming from the longterm SP500 chart, which suggests the market will test its 62SMA.

Is it realistic? I do not know. I do know, despite the potential for the market to go lower, when individual stocks I am interested in go to attactive levels I am not hesitating (but keeping a market short).

For instance…

PWR – I have been waiting for another entry point here, and it is just about here. Observing the pattern via the Slow Stoch, when the red line gets below 20 the stock typically pops. (Good for a nice trade or a long-term entry point, as I think the fundies to their biz is really good.)

nasdaq:

SP500

IMO, this is not an indication of anything significant. The only chart that caught my eye, that may even hint at this being the true end to the recent pullback was the VIX. The set up appears as if the VIX will break down, which mostlikely would mean the markets rally.

HOWEVER, the Vix is at an interesting support level, with Gasoline prices approaching, imo, unsustainable levels, especially w/unemployment at 9% at the moment.

Don’t get me wrong, I think there are still interesting individual names, like BNI at attactive levels of support (but are still not oversold and potentially go lower) that I would be a buyer of at current levels. This can be said about pretty much all stocks I am looking at, except for the Semis as they are oversold due to their current weak fundamentals.

The current market’s true support is the high momentum SMA via 20 or 14SMA, which were broken. This means the SP500 could see around 830 and the Nasdaq around 1600.

2. Took my profits with F. Could be a good long-term story here, but I was playing it for a trade and got my quick 12%. Can’t complain. But I will be watching it to trade it again. (As for the long-term thesis, the play is not for the health of the auto industry. It is a play to get F back to profitability, and a healthier company. Which is a very real reason a stock can go much higher, especially one whose company recorded $127B in revenue.)

3. GOOG - I shorted GOOG due to its technicals in the AM. It broke its high momentum support, and may break down to its next technical support at 380. (will cover at 380)

If the SP500 see the low/mid 800s GOOG will retest the 360-370 range.

ie… BNI, FCX, F… etc… although I am looking to buy FCX. 

Also, F looks interesting here for a trade. But if it breaks 4.65 I would stop out of it. (They priced the offering right at its 28SMA… as if catering specifically to traders.)

Doing my evening reads (yes I read at night too ) I see Cramer did a segment on GS. This is one of the few time I completely agree with Cramer, and the chartist’s view as well. Actually, GS is also one of my indicators to be expecting a market consolidation (there goes one of my secrets… another reason why I use it as a hedge).

The weekly says it all, with respect to resistance:

Its overbought and hitting 140 resistance. I do not think it is as strong as a resistance than the 160 level via the 200SMA. The wkly 200SMA also corresponds with the 500SMA which is a clear long-term support level for GS… hence no a major resistance marker.

Because I agree w/Cramer on all his fundamental points regarding GS (as per his video), GS will not see a massive breakdown.

If the market keeps going down, dragging GS with it, GS should consolidate to around the 120-125 level as it gets oversold. (and where I will triple up)

2. Took on a light position in GS via 130 July Calls. (more so to hedge my overweight market short position at the moment, but planned on going long these calls at 125-130. Will add if GS sees 130.)

Not closing out my shorts yet, but slowly adding names due to their somewhat consolidation. (Even though I think stocks will go down some more, this is a probabilities games, and the probability individual names rise increase as they get more consolidated in the current psychi of the market.)

Although the dollar is oversold (w/respect to the basket), and a consolidation upward is most likely in the cards, the chart signals the multi-national plays again… ei… PG, GOOG, MA… etc. (Dollar declines, their international earnings rise)

At the moment, I like PG the best… its part of my core position, not as expensive and pays a dividend it can easily afford to increase (which it just did by 10%).

With the SP500 approaching what I think to be a major resistance point (200SMA), I must ask the all important question… is my thesis correct?

As a trader I primarily listen to the market, and trade around what it is telling me. But every now and again the market is wrong. So… is the market correct or is it wrong?

Bullish case for a rising market:

1. Treasury’s rate rising signals, IMO, an increase tolerance to risk and benefits the stock market (there are other interpretations of the treasury sell off, but this is how I view it)

2. Inventories are too low and the replenishing of them spurs economic activity (although retail inventories will stay at very low levels as the personal savings rate continues to rise and consumer credit contracts)

3. Volatility is declining

4. The financial media has become blindly bullish (potentially leading to exaggerated moves upward, adding to the bullish case very short-term.)

5. Precieved stability within the financials, especially as the CDS market dictates via the declines (although a big chunk of this is on the back of PPIP)
6. Global trade stability via the baltic dry index

The above leads for a very real justified bottoming of the stock market, especially from the levels we bounced off from (660 level). The question now becomes… is further market upside justified? IMO, for more upside we need economic growth, so profit growth can return.

Neutral case for the market going forward:
1. Commodity inventory levels (specifically Copper and Oil) are pretty high w/respect to current demand

2. The baltic dry index has stabilized, but is not growing from the 2000 level.

3. The consumer is still saving at very high rates (good for them, but bad for 2/3 of GDP)

4. Consumer credit is contracting, despite the new found stability of the banks.

5. Jobless rate at 8.9%, increasing the default rates and why #4 is taking place.

The above reasons should be taken care of by the global stimulus packages in progress, and this is why I remain bullish.

Now the trader in me has an opinion…

Will the markets continue its current momentum? The SP500 rallied 8 of the last 9 weeks, with the down week barely being down

IMO, this type of move needs to consolidate given the neutral reasons given above, especially given its overbought condition.

Looking at my charts, the semis caught my eye. They broke their high momentum support.

Despite my initial purchase of NVDA yesterday, the above chart lead me to think the semis have more room to go down. But what I find most interesting is that the Semis are a leading indicator to the market. As the market was turning on March 9th, the semis broke out and started their uptrend, which lead to a more secure sentiment concerning the market move to high 800s. Now the semis are indicating the high momentum move via the market is ending.

The Naz is obviously indicating the semi weekness at its 200SMA.

This should start getting translated to the SP500 as well, especially given its current level and overbought condition

I am expecting the SP500 to consolidate via the oscillators which should translate to an SP500 of 870-880. Given the shear bullish attitude at the moment, 940-950 maybe achieved next week, and I will short heavy for the pull back.