State of the Market - 7/15/09

A very good day today for the bulls on Wall Street today, as a positive earnings report by tech bellwether INTC led to a gap open, and from there it was nothing but strength the rest of the day. It was a slow, steady, methodical climb higher and by the closing bell, the indices had gained about 3% across the board. Volume appears to be heavier and above average on the Nasdaq, and heavier but below average on the S&P.

Technically, there were positive developments all over the place for the bulls today. The S&P almost gapped over its 50 day moving average and has cleared the downtrend line I've mentioned many times that extended from May 2008. This is a big deal in my opinion. The S&P dealt with resistance around 931 for most of the afternoon but was able to close just slightly above it (slightly meaning one point). The head and shoulders pattern that developed so nicely now looks like it may be voided. The next level of resistance for the S&P is 956 - a close above there would give us new highs for the year.

Meanwhile, the Nasdaq also gapped up about its former uptrend line in a bullish fashion and took aim at its most recent highs (which was also its first lower low since March). It also fought that 1861 area much like the S&P did and closed just above it by one point. If bulls move this thing higher tomorrow, then they would be clearly in control of the market.

Financials were strong today, with XLF also clearing a downtrend line and climbing above its 50 day moving average. Next levels to watch are $12.67 and $13.08. GS, my key stock to watch for the week, did breakout of its short-term base but struggled to get past overhead resistance between $154 and $156, closing at $155. If this continues higher and can overtake these levels for good, then it means good things for the overall market. I am still watching for a bull trap here however.

Both OIH and XLE gapped above the necklines of their head and shoulders today as well, putting serious doubt into the validity of the original setups. Oil bounced a bit as well and could be putting in a rounded bottom here. I mentioned in a video last week that the USO should have support around $32 and so far that is proving to be the case. If oil continues to bounce back, it probably means good things for the overall market.

In terms of individual stocks, I did see some movers today from decent patterns but I did not play any as they were extended by the time I noticed. I posted these intraday on Twitter - AMKR, RCRC, EGOV, TLEO, SLH, and CKEC. I am not finding a ton of new setups that interest me, but a few that are looking decent include VITA, JOBS, and FHCO. ININ was an earnings mover from yesterday that followed-through very nicely today. If I go long, I believe I will only do so with earnings movers, as they will have a specific catalyst to push them higher even if the market in general chops around.

So overall, about as good as day for the bulls as they could ask for and I am definitely no longer leaning bearish. Perhaps that head and shoulders pattern was too obvious. I guess the real question for me to ponder right now is whether this is real, or whether it is a trick much like July 7 was, when everyone (including me) was bearish and expecting a big fall further. That didn't materialize, and I am curious as to whether this will be different. I am guessing there is quite a bit of bullishness out there after today, so I wouldn't be surprised at all by a pullback soon.

Earnings played a big role today, and I would imagine they will continue to play a big role as we move forward. One thing that is important after GS and INTC the past two days is that expectations have probably been ratcheted up a bit, and it will be interesting to see what the reaction will be if/when reports come in worse than expected. Will we get a 250 point down day? I don't know, and that's why (as I mentioned before) I will be focusing mainly on earnings plays and that's about it.

Definitely a good day for the bulls - let's see if they can keep this thing going. Longer-term, we're still in a three-month range of about 80 points on the S&P, so it would be nice to break out of it. Take care and good luck Thursday.

State of the Market - 7/14/09

A slow, choppy day today on Wall Street, as a great earnings report from Goldman Sachs via the U.S. taxpayers was able to push the market up slightly. Stocks fell for the first hour of trading today, but bounced a little before 11:00. By lunchtime, they were up to their morning highs but really couldn't bust through and moved sideways for the rest of the session. Volume appears to be much lighter on the S&P but about even on the Nasdaq as of now.

Technically, the numbers I mentioned yesterday and in the video last night (1800 on the Nasdaq and 911 on the S&P) were not broken through today although the Nasdaq got about as close as you can. OIH and RTH both had little moves today above short-term resistance but nothing overwhelming. Financials didn't do much of anything, much like Goldman. With the S&P right below its 50 day moving average and a year-long trendline, along with the Nasdaq touching the underside of its former uptrend line, I do feel it is imperative for the bulls to take control tomorrow and push this thing through those levels if they are serious about getting a rally going. I don't know if they will be able to or not - I guess much depends on earnings.

I was surprised that Goldman just sat there today when their earnings were released. Perhaps everyone knew already that they were going to be so great (thanks taxpayers) and just passed. Perhaps most of the buying was done yesterday. Overall, it was just a weird reaction. There wasn't a "buy the news" or "sell the news" reaction - it was just "sit there and do nothing". I guess I have to look at today as bearish - not being able to bust through resistance on great news isn't very impressive. I am not locked into that view, but if you watched the video last night, you know this is one particular stock I am watching very carefully for a tell for the overall market.

Going through my scans really quickly, I notice a ton of oil stocks that put in big bounces today. This bears watching because if this group starts coming back, it bodes well for the bulls. That being said, all today did for several of these was take them right back into prime shorting area(CHK and EOG for example), so the bulls have to follow-through tomorrow on these bounces in my opinion.

Not much else to say right now - again, earnings are going to be the focus for a while now and because of that, technicals may take a back seat. ININ was a nice earnings move today but I didn't see it last night. Keep your eyes open after-hours and pre-market - this is where you can catch many big movers and get in before trading on them starts. Here are two links for pre-market and after-hours that I refresh several times a night when I am watching.

Take care and we'll see what tomorrow brings - my gut is that the bulls need to move now or they might not get another chance. Good luck Wednesday.

Stock Market Video - The KEY Stock to Watch for This Market Right Now

Quick video tonight traders - I take a short look at the indices and why I am still slightly bearish to neutral today first before moving onto an analysis of a very important stock right now in my opinion. I looked at this stock today in my scans and something about it stood out to me. I get the feeling that the action here over the next few days could be a giant clue as to where this market heads the rest of the year. The funny thing is is that I think what most people might expect to happen is exactly what won't happen, but I explain that in the video. Check it out and as always, feel free to leave questions or comments. Good luck Tuesday.

The Key Stock to Watch in This Market - 7/3/09

State of the Market - 7/13/09

A very good day today on Wall Street for the bulls, as positive comments from Meredith Whitney provided the catalyst for a massive rally. Stocks started slightly higher but dipped for the first half hour of trading. Around 10:00, they put in a bottom and rose steadily and strongly for the rest of the session, finishing with strong gains and at their highs for the day. Volume will likely come in higher than Friday but does not look like it will be above-average as of now.

Technically, the numbers I focused on in the video this weekend were 1779 on the Nasdaq and 892 on the S&P. There was serious resistance at both those points and both were overtaken today which is good for the bulls. For the S&P, I will be watching 902 and then 911 as key resistance points - if those happen to be taken out as well, then I will likely reassess my bearish outlook. On the Nasdaq, 1800 is an area where the former uptrend line is at right now, so I will be watching to see if the bulls can overtake that. Just as with the S&P, a move above this level would be very bullish for the markets, but it is not a given.

Sector-wise, financials were the big winners today as they took out short-term resistance and are now have the 50 day moving average and a downtrend line to deal with around $12. A move above that for XLF would be quite bullish. RTH moved up a bit today but is still basically in a consolidation pattern. $76.65 is short-term resistance there and what I will be watching. The one thing that stands out for me today is that oil really didn't participate in the rally, which I find weird. Crude is extremely oversold but was flat for the day. XLE and OIH moved a bit higher but still look to be in bearish consolidation patterns. I would need to see this group as well as other commodities firm up before getting really bullish overall.

Some of you may be wondering why I haven't been trading much at all over the past few weeks and days like today are the reason why. I mentioned a few times last week that I would be surprised if the bulls just gave up so easily here and the market rolled over, and that's why I passed on shorting at the beginning of last week. In hindsight, I probably should have, because it turned out to be a nice area for two to three days short trades. Overall, though, I can't say I am mad about being in cash here. I am still bearish overall but realize that earnings will lead the market in its next direction and therefore am trying to be patient and wait for the perfect moment to make some big moves. I don't think we are at that moment.

What I think may happen over the next week is that these earnings releases are going to play havoc on any technical patterns out there, and that things will be very volatile. For day-traders, it will be great, but for more intermediate-term traders, there might not be a lot to do. I will look to play earnings moves to the upside if they present themselves, because I missed a ton last quarter and am still kicking myself about it. If you want to look back at some of the movers from last quarter and the power good earnings can have over a stock, check out charts like STEC and DDRX. Those have put in multi-week moves that were huge. I will try to post any possibilities I see out there as they happen.

That's about it for today - after this move, I am definitely less bearish than I was but the bulls still have some convincing to do to me. One day does not make a trend, and as I just said, the next few weeks will likely be dominated by earnings releases and the reactions to them. That makes for a tough environment, so be careful out there. Take care and good luck Tuesday.

Stock Market Video - Weekend Market Summary - 7/11/09

Hi traders - here's the video for the week ahead, broken into three parts. I put some long candidates on section two but to be honest, the quality of these longs is not very good in my opinion and I am doing so just in an effort to be prepared in case the market surprises me here. I am still bearish overall and will mainly be watching crude oil next week - very oversold and could bounce. If it does, then I think the market bounces a bit further too before falling. Take care and enjoy the rest of the weekend.

Overall Market and Indices - 7/11/09

Some Long Setups - 7/5/09

Some Short Setups - 7/11/09

To download directly, right click the above link and "save link as".

Some International Predictions for 2010

Why Brazil and Germany Will Outperform IMF Favorites China and India in 2010
By Martin Hutchinson, Contributing Editor, Money Morning

Markets were cheered Wednesday when the International Monetary Fund (IMF) projected global growth of 2.5% for 2010, a slight increase from its earlier forecast of 1.9% growth.

That’s good news for investors – but consumers in the United States and investors focused on it may not see much benefit.

The IMF forecast for the United States does not sound like a lot of fun: The organization is projecting growth of only 0.8% for this country next year. That forecast runs contrary to currently optimistic rhetoric about the recession bottoming out, and may account for the stock market’s weakness over the past year or so as the very real prospects of a sustained economic bottom begins to sink in with investors.

My own view is that the IMF is about right for 2010, largely because the U.S. economy may not yet have bottomed. While economic indicators have certainly improved from their dreadful levels of the first quarter, forward-looking signals – such as consumer confidence – are still at very low levels, indeed. And that signals a moderate decline, rather than stabilization of economic output.

What’s more, the U.S. federal government is running deficits far beyond the records ever seen in peacetime. That has already had an effect on the bond markets, which have seen a substantial rise in yields from a low of 2.07% in December to around 3.4% currently – not a usual feature of an economy whose gross domestic product (GDP) is declining substantially. That suggests that the normal healthy bounce from the bottom of recession may be muted by financing difficulties from the huge federal deficits, with the economy continuing to decline for longer than expected and recovering only feebly thereafter.

In that context, the Obama administration’s $787 billion stimulus may have been misguided, based as it was on economic theories that make very little sense. Such a large amount of extra federal spending has to come from somewhere, and if the government is running a budget deficit, that shortfall has to be borrowed. While a country with a modest fiscal deficit can afford a certain amount of stimulus, that’s not the case for a country whose budget was already in deficit by more than $1 trillion – or 7% of GDP – when President Barack Obama came into office.

By enlarging the deficit so much, the administration may well have destabilized the bond market, preventing the rapid turnaround in the economy that could otherwise have been expected. As a side effect, the stimulus may also have made it more difficult to pass President’s Obama’s hoped-for packages on global warming and healthcare, making it counterproductive politically as well as economically.

Beyond the U.S. borders, the outlook is somewhat brighter. Some countries – such as Britain, for instance – are in much the same mess as the United States, with excessive deficits and a money-printing central bank. Indeed in Britain, the central bank has for the last three months been buying enough government bonds to monetize the entire British budget deficit, reducing the upwards push on bond yields, but managing to re-ignite the British housing market, which had become even more overvalued than its also-overvalued U.S. counterpart.

The IMF forecast for Britain is worse than the projection for the United States – a decline of 4.2% in 2009 GDP, and a rise of only 0.2% in 2010. That looks about right, though some of the 2009 decline may be pushed into 2010 by the Bank of England’s actions.

In China, the picture is unclear. The IMF estimates growth of 7.5% in 2009 and 8.5% in 2010, by far the best performance of any major economy, but this both takes Chinese statistics at face value and underestimates the risks facing China’s economy.

Bank lending in China was more than $800 billion in the first quarter and was again running at record levels in June; it is thus likely that China is over-indulging in real estate projects with no tenants, as well as subsidies for hopelessly unprofitable state enterprises. This means there is a substantial downside risk for China’s growth, and 2010 may be much less pretty than 2009.

This is also true for India, where the IMF estimates 5.4% growth in 2009 and 6.5% in 2010, but does not take account of the out-of-control expansion in Indian government spending – up by 36% this year to spawn a deficit in excess of 10% of GDP.

In the past, India’s economic expansions have at times been choked off by credit crunches that surface when government deficits cannot be financed. This time around the same outcome is likely. As with China, I would expect 2010 to be much less likely than 2009.

Finally, there are two countries I believe the IMF is being overly pessimistic about: Brazil and Germany.

For Brazil, the IMF is forecasting a 1.3% GDP decline in 2009, followed by 2.5% growth in 2010. This looks too low. Brazil’s trend growth rate is around 5%, and it has little trouble selling its commodity-and-energy exports when China’s demand is still growing.

Furthermore, Brazil’s budget deficit is modest and its interest rates are just below 10% -- still substantially above the country’s inflation rate of 4% to 5%. I would thus expect Brazil to considerably outperform the IMF’s forecast, showing little net decline in 2009 GDP and growth close to its 5% trend in 2010, with domestic demand joining exports as a source of strength.

Finally, the IMF is exceptionally pessimistic on Germany, forecasting a 6.2% decline in 2009 GDP and a further 0.6% decline in 2010. Since German industrial production rose by 3.7% in May and its trade surplus rose to a record 10.3 billion euros (about USD $14.4 billion), this is far too pessimistic.

Germany has been notably cautious in its stimulus, and the German budget deficit is still only around 3% of GDP. Consequently, that key European nation is likely to find expansion easy to finance, and will outperform significantly the rest of the EU in the months ahead, showing a brisk recovery from its sharp downturn. I would expect Germany’s 2009 GDP decline overall to be a mere 2%-3% and its 2010 growth to be substantial, at least 2.0%-2.5%.

The IMF and I agree that the world economy is once again decoupling, with 2010 growth much stronger outside the financial-services-oriented economies of Britain and the United States. However, we disagree on where growth would be strongest; my picks would be Brazil and Germany, not the IMF’s fashionable China and India.

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State of the Market - 7/10/09

Another rather "blah" day today on Wall Street, as volume fell once again as stocks meandered their way through the day, basically going sideways. The total intraday range on the S&P was under 10 points once again, indicating that not much was going on. The S&P fell slightly while the Nasdaq rose slightly, leaving the market mixed overall.

Technically, let's go over the good and bad. On the good side, the S&P once again held the last line in the sand at 875, getting as low as 872 before bouncing slightly and closing at 879. This is clearly now the most important support level out there and if it is broken, the selling will likely pick up once again. To the upside, 888-890 short-term could be resistance as the S&P still hasn't climbed back above that neckline area. On the bad side, the Nasdaq looks like it is forming a bear flag here underneath its 50 day moving average on decreasing volume. It looks similar to many of the patterns I showed last week in the videos and are typically very good short setups. When a stock or an index rides underneath a moving average without being able to get over it, it is not a good sign.

In terms of sectors and ETFs, both OIH and RTH are making very similar bear flag patterns right now on decresing volume and these are two areas I will focus on as I do my scans this weekend. Tech obviously will also be a focus with the Nasdaq looking like it does - I have not seen too many here but will look hard this weekend.

My outlook hasn't changed - I will be shorting any bounces and based on the weakness of the bounce of the past three days, that may happen soon. That is another bearish point - it sure looked after Tuesday that we were set up for a reflex bounce soon, but instead we have gone basically nowhere. Not a good sign for the bulls at all. I just hope I can find more appealing setups than I did last night. Hopefully I will and plan on sharing those this weekend in a video. Take care until then and enjoy the weekend.