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Market Update And Forecast

Stock Market Direction

The month of June is known for choppy directionless trading. This year is no exception. After a decent rally in May, all major indexes are consolidating or correcting slightly. This action, or lack of thereof, might continue for a bit longer. NASDAQ has been pulling back to a support level, while S&P is standing still, while waiting for the 20-day moving average to catch up with price. There are no signs of a major top, and therefore any pull back from current levels (if it happens) will most likely turn out to be a buying opportunity. 1175 - 1180 represents an important support zone for the S&P 500, while 1190 is a minor support, which managed to hold over the last several days. Once again there is no clear resistance other that last week's high.

SPX Daily:

The above chart illustrates how S&P 500 is consolidating above 20-day moving average and a trend line connecting swing highs and lows over the last three months.

NASDAQ 100 (NDX) has also entered a consolidation phase. I suspect that it might stay in a range bound environment similar to the one we have experienced in February of this year. Bulls would certainly like to see NASDAQ's relative strength, which was present during the rally, but is showing signs of dissipating over the last few days.

Overall I expect larger swings due to the fact that the coming week will be influenced by options expiration forces, but I will be surprised if the market finds a trend for longer than a couple of days. It is a type of environment when what looks like a breakdown is in reality a buying opportunity, and what looks like a break out is in reality a selling opportunity.

NDX Daily:

Today's Focus

My first recommendation for this week is for Newmont Mining (NEM). Newmont, and gold stocks in general, is tracing out a bottoming pattern. The chart below shows a reverse head and shoulders formation, and although the neck like is not broken yet, internal indicators suggest that there is a high probability of this happening in a near future. Gold stocks to gold futures ratio has reached a buy level at the end of May, which historically led to explosive moves to the upside even during bear markets in Gold shares.

NEM Daily:

We have increased allocations to Gold stocks for our long-term investors portfolios a couple of weeks ago. This idea is for short-term traders.

Please visit Dennis at www.themarkettraders.com for the entry and exit positions that Dennis is recommending for this trade and others.


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