Market Wrap

Week Ending 5/22/09

Stocks

The market had another volatile week - up strong at first and then down mid-week. Three days the market had gains early in the day and gave them back on the close. When all was said and done the S&P was up 0.5% for the week.

As I stated in an email alert on Tuesday, I began accumulating a short position on the S&P 500 that same day. I'm not recommending this as a trade for anyone. What is suitable for one may not be suitable for another. Each must decide for themselves.

I added to that position today (Fri.) by 50%. I plan to accumulate my position incrementally over time if I can get the right set-ups. A change in trend reversal has not yet been confirmed.

The rally that started in March appears to be running out of steam. The big point advance on Monday was on low volume, which meant there was little conviction behind it.

Buying power (Lowry's) expanded during the rally, however, selling pressure barely lost any ground. This means that the market is susceptible to falling of its own weight or pressure.

If buying power lessens, it will cause the market to drop, which will tick off stop loss orders that will be self-reinforcing to the downside. For a market to continue up, ever increasing buying power is required. All that has to occur to cause the market to drop is for buying power to dry up.

Volume expanded on Thursday's correction - not a good sign for the bulls to hang their hat on. Three days this week the market gained in the first half of the day and gave it all back in the last hour of trading; another sign of distribution or selling into strength - not the stuff advances are built on.

Below is the daily chart for the S&P 500 SPDR's, which are actively traded and hence show good volume numbers. Notice the expanding volume on the decline marked in yellow. The lower trend line has been broken.

RSI is turning down as is STO, which is making its third lower low in the last month of trading. The black horizontal line marks significant overhead resistance that goes back to the January high.

Also, note that price has broken below its 13 ema (short term moving average) and is getting close to testing its 34 ema, which it has only been below for a few days since the rally began in March.

If the 34 ema is broken below on a two day or weekly close, it will strongly suggest the rally is over for the short to intermediate term.

Next up is the daily QQQQ's chart for the NASDAQ. Overlaid on the chart are various Fibonacci retracement levels. The horizontal yellow band represents the 38.2% level and significant resistance turned support from January.

If price breaks and closes below that level it would be a significantly bearish development. Right now the cubes are about to test their earlier May low at 33. A two day or weekly close below this level would indicate the first fib level is going to be tested (31.61).

The Dollar

The dollar was hit hard this week, falling -3.53%, which is a significant amount. I still believe that the dollar should be putting in a short term low anytime now, if it hasn't already; but I thought this back at 83-82 and the index is now at 80. Notice the 50 ma headed down towards the 200 ma.

The chart tells the story: March lows have been broken and the Dec. lows are being tested. RSI and STO are well into oversold territory. The dollar should at least bounce. If that's all it can do then “things” will not be looking too good for anything but gold, silver, and a few other choice commodities.

Gold

Gold had a good week, tacking on another +2.84%. The daily GLD chart shows price testing horizontal overhead resistance from the March high.

Notice both RSI & STO have negative divergences; however, one big day of price action could quickly neutralize both indicators.

Gold has advanced about 12% in the last 6 weeks and may need to consolidate before breaking above the March high and then February's high.

The weekly chart continues to build an inverse head & shoulders formation with the right shoulder presently under construction. A larger expansion in volume would be a constructive development. Further consolidation would not be a surprise.

Silver

Silver continues to outperform gold and gained over 5% for the week. Several of the silver stocks on the stock watch list and in recent email alerts have gone up significantly in the past few weeks.

The weekly chart shows February's high being broken above. The point & figure chart remains bullish with a price projection of 24.5, which is a significant move above the current price of 14.50.

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Good luck. Good trading. Good health, and that's a wrap.

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