{+++} Last week was tough and the coming week may not get any easier, at least on Monday and Tuesday. Right now its ALL about the bong market. Watch the 10 year (TNX). If yield goes higher, stocks will probably go lower and vice versa. As a contrarian I don’t think yield gets beyond 2.75%, but you never know. I will look at TLT for a long trade perhaps, but not yet.
On Monday we hear from the very hawkish Dallas Fed President Richard Fisher. He is clearly the most hawkish at the Fed and could get yields running hot on Monday. We’ll see.
On Tuesday, the health of the housing market will grab the market’s attention with the latest reading from the Case-Shiller housing index. A strong number would probably be bad, as traders will presume the Fed will feel empowered to tighten, even though that is a couple years away. Right now its all knee jerk reactions where things really do get over dramatized. That’s why its best for now, to trade really small or do nothing at all until things settle, and they will.
Short term support is at the 1576 and 1552 pivots, with resistance at SPX 1593-1599 and the 1614 pivot. Short term momentum neared neutral after Friday.
As you can see below, the SPX did indeed close below the 50 day moving average for the first time since April 18. If you look at the blue line though, you will see that the SPX landed exactly on its 100 day moving average and bounced. I was looking for 1570-1580 support, but many technicians were looking at that exact number of 1577. So far it held.
My worst downside level for next week would be the 1550 level. That 1614 level will be my upside target, so its possible that we get back to a 50-60 handle trading range for a while. That’s OK though, as it helps shake out weak hands.
I don’t think we go that much lower, but I do believe we will see sector rotation due the the bond market and a firming dollar. So stay away from weak dollar plays like consumer staples (they have a lot of international exposure and will do horribly with a strong dollar). See KO, PEP and CL just to name few. They have corrected already, but could go a lot lower. So the “safe” names aren’t safe anymore.
The U.S Dollar is trading at 82.60, but my guess is that it heads near 90 over time. That would be the top of the monthly channel I drew below. It will take time. As a result, currencies should be weak against our dollar if I’m right. The euro will probably go lower as well as the British Pound and others. There will be great opportunities to be short some of this stuff and I’m watching it closely. There are always opportunities somewhere.
I looked at a million charts this weekend and found nothing I feel like getting behind just yet. There are a lot of stocks that have broken moving average support and many that are in between moving averages. Buying when stocks “in the middle” like that is a fools errand.
I will definitely have one stock for you tomorrow that I like a lot, and I will give you details then. Enjoy your weekend.