Choppy Week Ahead, But the Trend is Up

Options expire at the end of the week and if scan results after Friday’s trading can offer up a clue it would be that we are in for a choppy ride. The NASDAQ has indeed followed through and broken through the wall that represented its downtrend. It was even able to shake off an afternoon sell off as it closed strong on high volume. The blue chip indices did not fair so well, likely as a result of their commodities sectors, which were under heavy distribution again. Getting back to our weekend scans, a surprising number of short setups continue to show up and long set ups, even in the tech sector, are few and far between. Near term tech stocks are getting close to overbought, even though the indices are showing good momentum at this time. On the other hand, tech and the blue chips are still very much oversold from a long term point of view. What to make of this mixed picture then? We think that these mixed clues project choppy trading this week as blue chips try and find a floor and tech works off some of its immediate overbought condition. At this point, due to the long term oversold nature of the market, we believe the risk of surprise belongs to the upside and therefore risk on the short side is strong. A new uptrend is in its early stages of development but it is going to take some patience and careful positioning to profit from it.