The last time we had four days in a row where the market went up was late November. The week ahead looks like an interesting set up for the bulls, in that Monday and Tuesday are critical.
If we don’t move above 790 on the S&P by Tuesday’s close, I think we’re in danger of reversing the current upward course.
The market is in an area of resistance from 745 – 780. If it can move through this area with strength and volume, there’s a good chance we’ll see an 8 handle on the S&P. However, time is of the essence.
As you can see from the Point & Figure chart above, there is heavy resistance at 815 all the way up to about 845. The current price objective for the S&P is 930, but there’s a lot of overhead supply to meet before it gets there. In addition, the 50 day moving average (MA) is at 812. Assuming the market gets to this point, this is the area where I would expect to see failure and a major reversal, which would resume the long term bearish trend. On top of all this, future areas of major resistance are the Bearish Resistance Line at 880, and the 200 day MA at 1046. Indeed, it is tough sledding uphill for the market.
Although I’ve nibbled on SH, SKF and SRS recently, they’ve only been small positions (less than 1% of account equity per position). Since we never really know for sure where and when the market will turn, I’ve started easing into short positions via these inverse ETFs and will continue to do so on days where we have large percentage gains on the indices. The major trend is still down, and that is still the high percentage bet right now. That much I do know.
I’m bearish for the long term, but there is some opportunity to play the long side with a small amount of money, by bottom fishing those stocks and sectors that have been beaten severely and are showing signs of recovery.
I’m focusing on the oils, oil service, and wall street banks and brokers. Ag chemicals also look interesting, as do semiconductors, software and internet.
Here is my current list of candidates, assuming the rally continues:
Energy: Apache (APA), Canadian Oil Sands Trust (COSWF), Denbury Resources (DNR), Hess Corp (HES), Imperial Oil (IMO), Lukoil (LUKOY), Murphy Oil (MUR), Noble Affiliates (NBL), Newfield Exploration (NFX), Petro Bras (PBR), Total Fina (TOT)…..(read more in The PPT)
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