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Monday 06/19/06
MONDAY EVENING MARKET UPDATE at 09:49 PM EST
Went about as programmed today as buyers and sellers played tug-o-war at the resistance points I outlined last night.....Shorts won.
It wasn't a purge, but rather a modest volume retreat with the DOW down 100+ points at one point with a couple of rebounds during the course of the trading session, finally settling down 72.
What we are going to be watching and waiting for is the NEXT bottom, where ever that may be, followed by prices that rise up and finally break those resistance trend lines. That will make for a little short term ABC formation that should signal time to jump back in with both feet. From the looks of things we are going to be watching for the same thing across the board, including commodities and precious metals.
Meanwhile there is liable to be more chopping around until Bernanke Day next Tuesday, followed by what should be a very active end of the month, end of the quarter through Friday. This one could be especially contentious because we have a whole bevy of hedge funds who have "a lot of 'splainen to do", with some serious damage to their balance sheets. They will attempt to make a last minute buying frenzy to load up on stocks they "think" their customers are going to want to see in their top ten when they report, even if they can't rationalize why they lost so much money.
The fix is in for a quarter point rise in rates, so that won't really have much sway with traders next week, but it will still be used as an excuse for some "after the announcement" volatility swings. As I have said before, the lead in to the FOMC meeting tends to be dull and uneventful with big swings immediately following signifying nothing. The following day usually reverses the end of the day direction.
Because of all of the window dressing that goes on during the last 2 days of this month/quarter and the first 2 days of next the period tends to be positive supported by fund managers rear end loading their stores.
At any rate, the end of the quarter transition might be just the ticket for the run that breaks the back of the downward sloping trends, so we will be watching closely how traders react starting Thursday of next week....you should too.
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WALL OF RESISTANCE at 01:32 PM EST
As I pointed out last night, the declining resistance lines and moving averages have acted as an impediment to more gains in at least the short term.
DOW is down about 68 points. this despite the fact that Oil is now below $69 and I expect that this pullback will continue for the reasons given over the weekend.
This is indeed a GOOD thing...despite our aversion to loss in that this is the way great bottoms are launched...Not in 150-200 point days, but stairsteps ....two steps forward, one step backwards as liquidity comes back into the markets to provide fuel for the next market leg.
Sunday 06/18/06
SUNDAY EVENING WEEKEND MARKET WRAP at 09:58 PM EST
We've had a nice few days rally with 300 points off of the lows of the week after 8 solid days down.
Friday on Marketwatch I showed you where the DOW was in relation to its 20 day moving average ...AND also that it was right below the declining trendline set up from the last few weeks of trading.
I am probably one of the most bullish on the planet, intermediate and long term, but virtually every index is up against the same wall. I think it was too much too fast which begs for this to be a rally that fails before we make another strong leg to the upside that pushes past the moving averages and resistance lines and turns them into support once again.
We had turn signals on 5 ETFs on Friday on our short term system, but not a single intermediate one turned positive. Doesn't mean these trades won't be successful, but also implies we may see them lose ground before they regroup and charge higher.
My usual advice, and I gave it, was to sit out expirations week. It is too volatile for the casual trader and the agendas that are being played out involve short covering and profit-taking, both of which skew the outlook and are meaningless in predicting ultimate market direction.
The Mondays following expirations, particularly on a Quadruple Witching are rebalancing days when new positions are taken. Overall we remain vulnerable through the end of the month and the first week of July, after which earnings begin to roll out, (which will be good again)and the rally should resume. I dearly would like to see a rally continuation next week that turns all those declining lines into support and I will be the first to say time to back up the truck, but till then it is really time for caution....
Here are the closing charts for Friday, marked up with support and resistance and critical indicators....
All look the same don't they...right on the verge of ectasy or short term defeat. Friday's action stalled the previous 2 days of excesses...either we are taking a breather before making a prison break, OR we will pay for the exhuberance.
Not trying to throw a wet blanket here...just warning you to be careful.... I picked up some bargains on the first day of the rally, but if you follow the old faithful Pitbull Weekly Stock Report you notice that we really only had one viable stock making a new high on Friday...That's not a positive. We expect things to dry up at a bottom before the big turn, but when we have a turn that puts 300+ points back into the DOW we expect to see some of that reflected in New Highs and outstanding stocks ....
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