6/28/2009 6:59:29 PM
Current Positioning:
SPY: Short 50%
QQQQ: Short 25% (going to cash on Monday)
General Commentary:
The system for the QQQQ is 50% on a Cash signal __ __ __ __
The markets broke below some key support levels during the week, however managed to climb back up above them by weeks end. Interestingly, the Nasdaq has held up more than the general market and is maintaining its uptrend.
Whether the Nasdaq market can lead the rest of the market higher, remains to be seen, at this point the S&P remains in a sideways pattern.
Having said that, the strength in the Nasdaq combined with the weakness in the VIX may be adding more weight for the overall market to head higher in the near term. Add in the seasonality that this is typically a strong time of the year and the odds begin to favor the bulls.
For us to turn bullish however, we still need to see more constructive work in the underlying indicators and most likely a close above 950 on the S&P, we'll see how the week ahead progresses.
On to the analysis...
SPX Chart - Bigger Picture
The bigger picture could be playing out a large topping out pattern at this point, where we go sideways between 890 and 960 for the next 3 or 4 weeks before heading lower.
The proviso to this is that if the linear MACD goes above zero (both red and black lines), then we will be at the beginning of a new bull market (the last time the linear MACD crossed was at the end of 2007, which was essentially the start of the bear market).
SPX Chart - Shorter Picture
On the shorter time period front, we're seeing the potential for a head and shoulders top developing as the 50 DMA was breached during the week. We can also see the continuing sideways move of the current range between 880 - 930.
A key to the next move in the market is the linear MACD, at this point it's heading lower and if it goes below zero, we should see a break below 880 soon. However, there's potential for it to turn soon and remain positive, it that happens, the bulls have the opportunity to charge.
A final point to note, see how the RSI dipped convincingly below 50 for the first time since this rally began in mid March, whether this is a precursor to more weakness remains to be seen.
For the week ahead, support on the SPX is 880 - 900 and resistance 930 - 950.
NDX Chart - Shorter Picture
The Nasdaq could be setting up for a run higher from here, notice how the MACD turned positive at the end of May and prices shot higher, we could be about to see the same thing again this time.
I'm not convinced at this point that we're going to see a break out to new highs, although we'll need to see if the NDX can turn lower on a retest of the highs and potentially set up a double top scenario.
At this point the 50 DMA held this past week and given the uncertainty surrounding this move, we have gone to cash.
For the week ahead, support on the NDX remains at 1400 - 1440 and resistance at 1500.
The VIX Picture
The VIX made new lows on Thursday and Friday, and this could be giving a leading indication for the markets that strength is returning. Also note the cross lower on the MACD, another confirmation of strength for the markets.
A drop below 25 will definitely send a strong message that normalcy has returned as participants will be feeling more confident about the future.
The VIX measures the premiums investors are willing to pay for option contracts and is essentially a measure of fear i.e. the higher the VIX, the higher the fear in the market place. It tends to move inversely with the markets.
Performance
We'll be using a starting capital of $5,000 for each market and allocations are based on 25% of this or the remaining balance.
QQQQ
Entered | L/S | Price | Qty | Value | Closed | Price | P/L | Balance |
26 May | Short | 33.21 | 37 | $1,229 | 26 Jun | 36.12 | -$108 | $4,892 |
11 Jun | Short | 36.72 | 34 | $1,248 | ||||
SPY
Entered | L/S | Price | Qty | Value | Closed | Price | P/L | Balance |
21 May | Short | 88.96 | 14 | $1,246 | 26 Jun | 91.77 | -$41 | $4,959 |
11 Jun | Short | 94.05 | 13 | $1,223 | ||||
23 Jun | Short | 89.47 | 14 | $1,246 | ||||
Quote of the Week:
The quote this week is from Isaac Newton, "If I have seen further it is only by standing on the shoulders of giants."
Feel free to email me at angelo@stockbarometer.com if you have any questions or comments.
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