Sunday, April 15, 2012

Stock Market Outlook for Week Ahead - "Bears in Control for Now, Cash is King"

Sorry for the lack of posts the past week or so - I have had to deal with some fix-it issues around the house due to a small sewage backup (fun stuff) and haven't been trading much over that time.   To be honest, however, a lot of my lack of trading has been dictated by this market.  My signals turned bearish two Fridays ago and this past Monday and the market is certainly in a mini-correction (at best).  I was somewhat bullish Tuesday afternoon simply because the market was at very extreme oversold levels and I expected a very sharp bounce.   I guess we did get that bounce, but it ended right at short-term resistance and saw no follow-through Friday which is extremely bearish in my opinion.

The charts of the major indices all look awful.  When a market rallies right up to resistance and then rolls over like it did on Friday, it is usually telling you it wants to go lower.   Perhaps the bulls will right the ship here and bounce us back up and this uptrend will resume, but it seems to me like a LOT of people are just assuming this will happen.   I don't know myself.   I sort of think based on this recent action that this correction could last longer than most think.   I am not saying we'll be down the rest of the year or anything, but maybe we'll see a 7-10% correction here instead of the 2-4% that most are seeing.  

It's also not good to see the number one leading stock in the world breaking down on heavier volume.  AAPL is now below its twenty day moving average for the first time this year and didn't bounce at all with the market on Wednesday and Thursday which is worrisome.

AAPL - Finally Correcting?

I think cash is a very good option here and until Friday when I saw some interesting charts and my buy stops were hit on them (not good for me however), I was in cash pretty much all last week.   I am posting a few charts that are holding up best here and that I will be watching, but as of now, I think I will wait for Thursday's highs to be taken out before getting long again.  If the bulls can do that and overtake their short-term moving averages, then I think we can consider them back in control.   There aren't very many charts I am interested in on the long side anyway, so it may take a few weeks of backing and filling for charts to setups.


Here are some shorts as I do think there is a very good chance we see lower prices this week, although it's not a given.   Shorts are always harder to play than longs so I am hoping the bulls can regain their mojo soon.   I just have my doubts.  The charts below are all recent IPOs (which in general have been very weak recently) and are below their short-term moving averages and forming bear flags.  These are volatile but can fall quickly if the market sells off further.  A few other names to watch are GRMN, MELI, CHS, and EXPR.

 All Charts from TC2000, Courtesy of Worden Brothers, Inc.

The market rarely goes straight up or straight down, and we have yet to have much sideways chop so far this year, so be alert that that's what we could be in store for here.   Unless you're running a hedge fund or something, remember that you don't have to trade at all times.  Cash is a position and it may be the best position here until the bulls reestablish control.   Oh yeah - we also have tons of big earnings reports to deal with over the next few weeks, which will make things even more difficult to predict.  Good luck next week.

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