Near Term Bottom? Looks Like It

We didn't get a turnaround Tuesday yesterday, but perhaps we got a bottom Tuesday, which is even better as it gives traders a chance to slide into position for another potential run back to the top of the trading range.

Yesterday's set up still stands. The market looks to us like it is ready to make another attempt at higher prices.

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Outlook:

Note that a time correction vs a price correction is the most bearish of the two possible scenarios. Ultimately we are probably looking at support at SPY $126 giving way for even lower prices this year. There is nothing bullish about the long term outlook of this market.

Turnaround Tuesday, Again?

Monday was mildly negative, which considering the meltdown occurring in another bank stock (WB) can probably be seen as somewhat of a positive.

Today is Tuesday and what we have had a lot of lately are turnaround Tuesdays.

Moreover, take a look at the technical set up in the SPY.



If the market is going to surprise aggressive short sellers, turnaround Tuesday seems as good of day as any to do so.

Outlook:

Note that a time correction vs a price correction is the most bearish of the two possible scenarios. Ultimately we are probably looking at support at SPY $126 giving way for even lower prices this year. There is nothing bullish about the long term outlook of this market.

GE Stiff Arms Bulls

When we began providing an assessment of risk a few months ago one of the premises of the risk assessor is that prices tend to return to the 50-week average during bear market declines.

Note that since we have begun tracking the progress of this bear market decline, the price has not yet been able to mount a rally strong enough to tag the falling 50-week average. Moreover, what has been happening is that the 50-week average has been slowly, but surely moving lower.

What we have here is a time correction rather than a price correction. The market has been range bound since late January. Over the past couple of weeks the market has been acting better, so we had considered the possibility that price would finally correct upward to tag the 50-week average, but with Friday's GE debacle prices failed at support and took a turn down once again.

When one of the largest cap firms in the world reports a strong reduction in projected outlook, the market has to stand up and take notice. It may be able to shrug off GE's warning if this week's earnings reports are stronger than expected, but for now it looks like prices are headed back to the bottom of the range again and that the time correction will continue as it has for the past three months.

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Outlook:

Note that a time correction vs a price correction is the most bearish of the two possible scenarios. Ultimately we are probably looking at support at SPY $126 giving way for even lower prices this year. There is nothing bullish about the long term outlook of this market.

Not Much Is Working Here

Stocks in general have gotten little boost following the breakout, which occurred on April 1. In fact, the only stocks that have shown a degree of reliable buying power have been those stocks in the agriculture and industrial metals sectors. In other words, nothing has changed in the market's character, which has existed since the beginning of the year.

Outlook:

Now that the market is closing in on the red zone of resistance we outlined a couple of days ago, selling into strength continues to be the best course of action. If SPY prices can spike up to the $139-$141 area an excellent shorting opportunity will have presented itself.

Dull Drift Continues

Nothing has significantly changed from yesterday's assessment. The market continues a dull sideways drift that we believe has a better than even chance at resolving itself to the upside.

Entering The Red Zone

When we started providing daily updates to the Risk Assessment Meter a few months ago, we noted that the premise was that risk should be considered high when prices are too far from support to buy and too far from resistance to sell.

Indeed, last week the market broke free from its trading range and broke out to the upside. This caused us to advise taking on a long position, which has thus far proven to be the correct course of action to take.

Keep in mind, however, where the market is at in relation to longer term support and resistance levels. The long position taken last week has thus far done well, but as we will see by examining the long term view of the SPY, any additional strength here should be used as an opportunity to take profit and to start looking for good short positions again.

In the weekly view of the SPY, note that prices are just now entering into the red zone, which we would consider the area where risk of a reversal is high. Likewise, risk for short positions will decrease significantly as prices reach for extremes inside the red zone, which is measured by the area where the falling 50-week average and falling trend line come close to meeting.

An old stock market saw says that you should never short a dull market. Indeed, the market has been dull over the past few days. It's our best guess that the market will surprise shorts who jump in too early and that we will see an additional price spike as we enter earnings season that will take prices up to the 50-week average ($139.70) and potentially up to the falling trend in the $141 area.

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Outlook:

As noted above, we believe that prices have a good chance at spiking higher before they come back down. If indeed this occurs, use the strength to take profit on your long positions and start putting together a potential list of short positions again.

Look! That Pig is Wearing Lipstick!

Despite all the hullabaloo in Congress regarding Bear Stearns yesterday, the market held its gains yet one more day. This can be best interpreted as the market agrees with Tuesday's strong breakout and an argument, we think valid, can be made that it is just biding its time for follow through higher.

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Outlook:

The market turned 180 degrees yesterday and as such, the recommended position flipped to long. Over the past few days we have argued that it was too late to add new short positions and to protect last Friday's lows with stop losses. Indeed, this should have protected everyone from a loss, thus we were accurate in assessing that risk was manageable on the short side.

With the strong reversal that not only took out Friday's highs, but which blew through the 50-day average on strong volume, long side risk is now quite manageable with stops to be kept below Monday's lows.

Bear Stearns: The Pig That Was All Gussied Up to Be Sold To Your Pension Manager

Speaking of Bear Stearns, the argument has been tossed around over the past few days by TheStreet.com's Jim Cramer, among others that a good company was taken down by short traders.

This is bunk. Don't believe those who tell you any different.

These types of arguments might work amongst school children but for the rest of us adults it is clear that banks are in trouble not through some Fed conspiracy to take a monopoly position in the industry and not by a handful of secretive and powerful short traders. The banks are in trouble because they took on massive amounts of risk and hid the risks from their investors by doing what Wall Street has been doing for years, putting lipstick on the pig.

In other words, the official story is Wall Street lying to you. Protect yourself by being skeptical, it is in your best interest.

Here's a nice little presentation on Sub Prime that explains in very simple, yet profound terms exactly what happened and what type of fraud was perpetrated on investors. This is nothing new. If anyone is interested in seeing how Wall Street operates from the inside, read Liar's Poker and learn how banks like Bear have been putting lipstick on pigs like many complicated derivative packages and hawking them off to your pension fund managers for decades now.

Link

Note: The presentation is from a Russian website, but it has both English and Russian translations. It's easy enough to navigate. Just click the funny little set of symbols [Следующая] at the top of each page. In Cyrillic these symbols spell the word "next."

Bernanke's Loose Lips Fail To Sink Market Ships

After a big up day like we saw on turnaround Tuesday this week, it's impressive that prices were able hold the highs yesterday and even to eke out a small gain. This is especially true given the fact that Fed Chair Bernanke and his loose lip policy decided to roil the markets with talk of recession. It's a real head-scratcher why this man would aggressively slash rates every time the market hiccups and then turns around and offers up a reason to sell. Perhaps he should be called schizophrenic Ben instead of Helicopter Ben? But, in the words of Malcolm X, I digress.

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Outlook:

The market turned 180 degrees yesterday and as such, the recommended position flipped to long. Over the past few days we have argued that it was too late to add new short positions and to protect last Friday's lows with stop losses. Indeed, this should have protected everyone from a loss, thus we were accurate in assessing that risk was manageable on the short side.

With the strong reversal that not only took out Friday's highs, but which blew through the 50-day average on strong volume, long side risk is now quite manageable with stops to be kept below Monday's lows.

*$135.00-$135.50 look like important levels for bulls to protect moving forward. If these levels break down, we would likely have to consider this upside move a failure.

Time To Buy Again

Yesterday we posted "The market remains very vulnerable at this point, though there seems to be some sort of a short squeeze brewing. Given deteriorated technical conditions, it's doubtful that a squeeze can take the market far."

We were correct about the fact that a short squeeze was brewing. It remains to be seen whether we were correct that the squeeze can get far.

Indeed, it may be the case that yesterday wasn't merely a short squeeze, but that it represented actual buying. In other words, money that has been sidelined looked to have moved in to the market yesterday, meaning that the price action represented more than just short covering.

The falling 50-day average has now been conquered and probabilities have now increased that we are on the verge of a rally that could offer some excellent profits on the long side.

Just don't forget that we are still in a bear market. It's important to keep taking profits off the table as they come. It's also important to be quick to switch allegiances should it become necessary.

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Outlook:

The market turned 180 degrees yesterday and as such, the recommended position flipped to long. Over the past few days we have argued that it was too late to add new short positions and to protect last Friday's lows with stop losses. Indeed, this should have protected everyone from a loss, thus we were accurate in assessing that risk was manageable on the short side.

With the strong reversal that not only took out Friday's highs, but which blew through the 50-day average on strong volume, long side risk is now quite manageable with stops to be kept below Monday's lows.

Market May Be Stabilizing In Front Of Earnings

The market remains very vulnerable at this point, though there seems to be some sort of a short squeeze brewing. Given deteriorated technical conditions, it's doubtful that a squeeze can take the market far.

Friday's high continues to be an important area for near term traders to watch. If prices move back above that area short positions put on at the falling 50-day average could be jeopardized. This does not mean, however, that it's a good idea to start looking for long positions. Rather, it means that trading opportunities are likely to be hard to find while the market looks to upcoming earnings for its next catalyst.

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Outlook:

The market may be seeking to stabilize near current levels in front of this upcoming round of earnings. As such new shorts or long positions are likely to see muted performance. If you are short, keep your stops over Friday's high and don't add any new positions. On the long side, steel and oil exploration might provide opportunities but in this very technically damaged market, it is prudent to keep most of your cash sidelined waiting for better conditions.

Prices Bleed Off In Complacent Environment

Volume dried up as the SPY ran back into its falling 50-day average spurring us to close our long positions and advise members to start putting short positions back on. Indeed, the market turned into the type of slow drip lower where prices bled out the previous week's gains drip by drip.

When market's panic and sell off on heavy volume, it tends to attract contrarian buyers who note the spike in fear as potential for some type of price reversal. More recently, the Fed has been extremely sensitive to the market's moves and each panic has been met with another dramatic rate cut that has frustrated short holders who were otherwise right about the market's direction.

What we are seeing here, however, is the type of market that wears out the longs. It's the type of trading that allows recent buyers to hold and hope for some type of reversal. Generally you can expect the slow bleed lower to end in some sort of panic wash out event which occurs when late buyers finally give up and sell right before prices reverse once again.

Probabilities remain with the sellers as we start out the week. Nevertheless, it is important to not remain married to an opinion. Keeping a stop over Friday's low is probably a prudent measure to take in case this market decides to for whatever reason, reverse on a dime.

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Outlook:

While prices followed through lower last week, it is getting a bit late to short new positions.

Watching And Waiting

Today is an important day for the averages. If prices close near or below yesterday's close an important weekly sell signal will incur raising the probabilities for a trip back down to March lows.

On the other hand, month end window dressing could kick in lending to more neutrality.

In other words, it's best not to make any bold predictions and take a wait and see approach here. As of yesterday's close, probabilities favor more downside. We'll see today if the market agrees.

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What is the Power Signal?

Outlook:

With volume shrinking as the SPY tags the 50-day average, it's time to start putting on short positions again.

The Path Of Least Resistance...

The SPY continued to struggle with its 50-day average yesterday.

The low volume rise into resistance can reasonably be interpreted as short covering, not actual buying. Now that the price has stalled at the falling 50-day average shorts have been reloading their positions.

Without a new catalyst it is reasonable to look for a resolution to the downside and perhaps a retest of this month's lows.

Check the XLF. While the SPY hasn't yet rolled over, the XLF has already turned back down carving out yet another lower high.

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It makes zero sense to bet on a bottom in this sector. Let others assume the risk as gamblers try to pick a bottom.

One of the arguments we hear a lot is that the time to buy is when things look the worst. That may be true at some point, but we would then ask, didn't things look like they were at their worst back in 2001? In 2001 bottom catchers took a full 50% haircut before prices actually began to stabilize. And then they weren't vindicated until almost 2004.

Buy when there is blood in the streets is the mantra your stock broker whispers in your ear as he tries to unload inventory that has been collecting dust on the broker's shelves.

Leave bottom picking to those with deep pockets and long time frames.

Outlook:

With volume shrinking as the SPY tags the 50-day average, it's time to start putting on short positions again.

50-Day Average A Stumbling Block Yet Again

Yesterday the SPY struggled at its 50-day average as volume has shrunk 6 out of the past 7 days and the day volume grew occurred on a sell day. Shorting at the 50-day average on shrinking volume is a no brainer.



Just make sure to keep tight stops in case end of the month mark ups take over.

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Outlook:

With volume shrinking as the SPY tags the 50-day average, it's time to start putting on short positions again.

Dude! Where's the Volume?

Price action yesterday was indicative of a continuation of the squeeze that started last week. We have one question though, where's the volume?

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Outlook:

Every short squeeze has the potential to turn into a counter trend rally, but over the past few months short squeezes have generally pried shares loose from the shorts only to reverse hard once again.

Given the lack of volume yesterday, one has to wonder if indeed this is to be the case yet again.

Start looking for short positions again if the SPY can rally two or three more points.

Upside Potential Develops

Last week was a wild roller-coaster-ride of a week but in hindsight it looks like emerging from the dust of all the volatility is a double bottom that has the potential to finally lead to a decent countertrend rally we have been expecting for some time now.

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Outlook:

Until we see prices regain the 50-day average (SPY $135.40) and hold for more than a day, price action should remain suspect. However, probabilities strongly favor a decent rally emerging from the current price base.

*While risk is high, higher prices early this week would actually lower risk as higher levels of support are established. We will need to monitor market breadth as prices move higher for confirmation, but we suspect that a sustainable upside move can develop from the base that began forming last week allowing some of that cash to finally be put to good use on the long side.

Double Bottom, or Precursor to More Downside?

After another huge rate cut the expectation was that shorts would get squeezed again yesterday. Instead massive price failures occurred across the board as early morning strength was heavily sold into.

The question remains, has the SPY carved out a double bottom or was this week's bounce just the precursor to more downside?

The answer is it's not clear. The market is essentially range bound here.

The big news of this week is the selling taking place in the market leaders. Ag, steel, gold, and oil all have faced heavy distribution pressure this week. Moreover, as funds continue to unravel their positions (possibly to meet margin calls in their losers) the downside in these high flying sectors could become fast and furious.

While we are recommending a cash position as a whole today, traders might wish to look for short entry points in the commodities sectors.

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Outlook:

The outlook is unclear. The market is range bound and until something breaks, day-to-day activity is only so much noise. Smart money doesn't bet on the direction of noise; there are no advantages in a random environment.

Rate Cut Stabilizes The Market

The trend turned from sharply down to neutral yesterday following a better outlook on GS and LEH, which was then bolstered by a 75 basis point rate cut.

Short positions should probably be covered.

The big question then, what is it going to take before it makes sense to go long again?

The first step would be a successful move back over the 50-day average at $135.65. Until that happens this move must be considered just as suspiciously as the last two bounces we have had this year.

That said, a handful stocks that have been knocking at the door of their 52-week highs in recent weeks are once again threatening breakouts. While the rest of the market battles out areas of resistance and support, you might consider putting money to work on the long side in the strongest stocks.

We would avoid trying to bet on the weaker stocks at this point. The chances of getting whipsawed out trying to pick a bottom in the banks and home builders is just too high even with recent rate cuts giving them a boost.

Outlook:

Near term capitulation may be put on the back burner with the Fed's continued aggressive posture. If the SPY can overcome its 50-day average, it may have a shot at testing the downtrend in the $142 area.

No Capitulation So Be Careful With The Likely Bounce

The market is giving high odds for a rate cut with the Fed policy statement to be released at 2:15 p.m. today. The market's reaction to the cut is likely to make or break support levels, which the market closed near during yesterday's session.

The SPY has support at $126. The Bear Stearns debacle wasn't able to take down this area yesterday, but that certainly does not mean that the all clear signal has been sounded for the longs.

We seriously doubt that a major low has already been put in. Technicals are a mess and there is no good reason to step in and try to pick a bottom in this market. While a rate cut is likely, it remains to be seen how the market will respond to a cut. The dollar is getting killed and more rate cuts are just going to cause further damage to the currency that is already on life support. It's hard to imagine that a big rate cut will be embraced as a positive at this point.

It seems unlikely that support at $126 will get cut today, so what we want to watch out for is how the market behaves if the SPY returns to the $129-$131 area.

Sentiment has reached levels of extreme bearishness, and the VIX is finally spiking. Thus, it wouldn't be a huge surprise to see the market bounce today allowing fear levels to let off some steam.

A bounce is not a reason to get bullish though. Rather, a bounce here would likely be a chance to reload the short position. We have zero signs of capitulation; either near term or long term so it is our best guess that the SPY has a date with its extreme somewhere in the $122 area once a bounce relieves some of the near term oversold condition.

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Outlook:

The bounce failed when Bear Stearns collapsed Friday. We may be nearing a capitulation event, but it's early to tell.

Setting Up Ugly Unless Fed Steps In Again

The market is poised for a poor open today following Friday's failure of Bear Stearns. With the VIX popping up again, we may see some type of capitulation take place early this week.

Right now it's best to be short or just out of the way. Keep in mind that the Fed is still a factor. If they drop rates again a short covering rally could kick off. With so many variables that could occur here and with such wild intraday volatility, there is no way to make a good call on the market today. Outlook:

The bounce failed when Bear Stearns collapsed Friday. We may be nearing a capitulation event, but it's early to tell.

Two Words: Energy and Metals

Indeed, even after a weak open yesterday, prices held and buyers continued to step in front of bad news keeping alive the idea that the market is basing and gearing up for a move higher.

Energy and metal stocks are just pulling higher out of nice pullback patterns and the group offers a great deal of excellent long opportunities today.

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Outlook:

With yesterday's high volume reversal we may have the start of a double bottom, which puts the 50-week average back into play. Volatility is expected to remain extreme and finding gems in the broader market is going to be more a matter of luck than skill. We suggest avoiding everything but those bullish areas that have continued to find a bid throughout this bear market; commodities, ag, and China.

Outlook Nuetral With a Potentially Bullish Bias

Yesterday the lack of bullish follow through gave the bears a slight win. However, charts are firming up on a weekly basis and this may be the beginning of a base-building process rather than a set up for more downside.

Today we suggest everyone start putting together a list of potential long positions, but keep your powder dry and wait for set ups to gel before jumping headlong into the fray.

Most stocks are trading up off of support levels, so even if prices turn lower today, true breakdowns are unlikely to occur. If we are on the verge of seeing the floor come out from under this market once again there should be time to do research and take only the best risk:reward positions by assessing today or tomorrow's close. There is no good argument that we can see at this time for hurrying back into the market.

Take your time here. Prices are not trending either way and at best you can call this market neutral. Neutrality and overly bearish sentiment seems to favor the bulls at this point.

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Outlook:

With yesterday's high volume reversal we may have the start of a double bottom, which puts the 50-week average back into play. Volatility is expected to remain extreme and finding gems in the broader market is going to be more a matter of luck than skill. We suggest avoiding everything but those bullish areas that have continued to find a bid throughout this bear market; commodities, ag, and China.

Fed Strategy Proves Effective At Pulling The Market Back From The Brink

Yesterday we discussed the lack of liquidity that was forcing institutional traders to sell even into the extremes. Once again the market was at the brink of collapse and the Fed and the Plunge Protection Team reeled it back in using something a bit different from a rate cut and perhaps something that has proven to be more effective; a new loan mechanism that re liquefied the economy with $200 Billion.

Yesterday's late day buying appears to be something more than just short covering. It looked to us like broad scale program buying. This potentially puts in a double bottom at the 200-week average and calls back into play a return to the 50-week average at $141.43.

Outlook:

With yesterday's high volume reversal we may have the start of a double bottom, which puts the 50-week average back into play. Volatility is expected to remain extreme and finding gems in the broader market is going to be more a matter of luck than skill. We suggest avoiding everything but those bullish areas that have continued to find a bid throughout this bear market; commodities, ag, and China.

Liquidity Crisis And Mixed Sentiment = More Ugly

Under normal market conditions we would argue that the market is very oversold, and with sentiment levels turning extremely bearish according to SentimentTrader, that the market is due for a minor relief rally or at a minimum a period of sideways consolidation.

We tend to think that this is just the case.

However, the fly in the ointment may in fact be that this time things are different. Banks are reeling in liquidity by refusing to give out loans and calling in margins. This is forcing the big players, such as The Carlyle Group, to liquidate their positions. This may mean that the goal posts are being moved back and that prices may need to overshoot to the downside rather than regress to the mean, which would be a reasonable expectation under normal conditions.

The bottom line, it looks like the short side still has room to move. At the same time, be careful and keep your stops tight so as to lock in profits should prices decide to regress to the mean as they are apt to do.

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Outlook:

Oversold may beget more oversold unless the market starts to see more liquidity due to a government bail out or Fed action. Meanwhile, watch for a capitulation spike down to occur sometime over the next week or so. A high volume spike to the downside, should it indeed arrive, would be an excellent opportunity to cover your short positions into strength at a handsome profit.

Sentiment:

A word on sentiment here: As noted above, the website SentimentTrader has near term sentiment spiking to the extreme bearish side today. This is a contrarian signal to be careful with short positions. Meanwhile, the VIX still has plenty of room to move before it reaches overly fearful territory indicating that we may be headed for a larger spike to the downside that would give us a capitulation low.

What is most striking to us is more anecdotal. Browsing the Yahoo! Finance Message boards we find that a majority of the writers remain hopefully bullish. In general sentiment readings from the message boards can be categorized as follows: the economy is not going into a recession and the selling is overdone; fear levels are too high so I'm buying the low here looking for a countertrend bounce, and with PE ratios this low stocks are a bargain.

This type of sentiment finding tells us that a lot of traders are holding and hoping. Hold and hope is what happens when the market is in a retreat and the results can be very painful for those traders who are in denial about their losses. Denial tends to lead to acceptance and in the market, acceptance tends to arrive at capitulation, the point where the pain becomes so great that they let go right before the market reverses.

The bottom line here is that as long as the majority is in that hold and hope stage the market has room to move to the downside; perhaps much room.

Slippery Slope Of Hope

The market sold off on Friday and closed the week at new 52-week lows. Intraday lows have not yet been tested on the SPY, but they continue to beckon. With the lack of panic that exists in the market we can only conclude that the market is drifting down a slope of hope here and without a rate cut the 200-week average is unlikely to hold, setting up for a panic low near $123.00-$122.50.

Outlook:

Unless the Fed steps in with another emergency rate cut January lows are likely to be tested. And, considering the aggressiveness of recent selling, January lows may not act as support, but rather a milestone on the way to an extreme target of $123.00-$122.50. A move to this area would be ideal and would set up an excellent buy opportunity for a countertrend rally.

Understand though that this is just one potential scenario. Another scenario that could potentially unfold would be for the SPY to find support at its 200-week average at $129.50 where it would create a higher low.

*Assuming the Fed doesn't come in with another emergency rate cut. If they do, we suggest everyone lock in profits on their shorts immediately. In addition, it is likely too late to open new short positions here. Rather, maintain the short positions taken over the past week but don't get extended by shorting too late. Pullbacks are sure to occur as prices work their way lower.

Friday's Jobs Number: The market sold off after the expected 30,000 new jobs turned out to be a loss of more than 60,000. John Mauldin argues, however, that the real loss may number closer to 2,000,000. Ouch!

Market Poised At The Brink; Again

More important than the SPY here is the fact that the QQQQ is poised to firmly break weekly support. If prices don't rally back today the NASDAQ will have broken down projecting much more selling in coming weeks.

Today's Jobs report is released at 8:30 a.m. before the market opens. The report is not likely to save the market and if it comes in under estimates it could crush stock prices. Which brings us to our warning: If the market sets up for a plunge today look out for another emergency rate cut from the Fed. Rate cuts have been busting short set ups for the near term making it tough to make a profit. If the Fed hacks rates again today we suggest covering your short positions immediately.

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Outlook:

Unless the Fed steps in with another emergency rate cut January lows are likely to be tested. And, considering the aggressiveness of recent selling, January lows may not act as support, but rather a milestone on the way to an extreme target of $123.00-$122.50. A move to this area would be ideal and would set up an excellent buy opportunity for a countertrend rally.

Understand though that this is just one potential scenario. Another scenario that could potentially unfold would be for the SPY to find support at its 200-week average at $129.50 where it would create a higher low.

*Assuming the Fed doesn't come in with another emergency rate cut. If they do, we suggest everyone lock in profits on their shorts immediately. Keep an eye on the news before the market opens. This is especially true if the jobs report comes in below estimates. Such an event could be what triggers the Fed to cut rates. News Source

Tomorrow's Jobs Report is Pivotal

The 5-day average remains in a down slope, so despite the past two positive days the near term trend remains down. The intraday action has continued to be choppy this week, but the market is vulnerable to a sharper drop should it close out the week on a negative note.

Right now the price action appears to be at a stalemate and is likely to remain that way until tomorrow's jobs report is released. If the report shows more job loss then it seems likely the market will sell off. A sell off would firmly break the long term trend on the QQQQ and would provide follow through to last week's SPY sell signal.

If the market doesn't sell off on Friday then prices will likely remain range bound and a run back up to February's highs may be in order.

If you haven't gotten the hint yet, Friday's jobs report is pivotal.

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Outlook:

As noted above what happens next probably depends on the reaction to tomorrow's jobs report.

Despite Bounce, Near Term Trend Remains Down

The late day bounce on rumors may gave bulls a small pick-me-up that may extend into today's session. The big however is the fact that the near term trend remains down, the 5-day average continues to slope lower and as such the path of least resistance remains down.

As we start off today, entry points are tough to find but we certainly wouldn't be buyers in this market. Short positions entered earlier this week should be maintained as the downtrend is very likely to regain its foothold sooner than later.

Outlook:

The rally attempt failed miserably and the bottom of this market is poised to fall out. A retest of January's lows seems likely at this point.

Market Hangs Onto Support; By A Thread

Buyers moved cautiously into the market late in the day yesterday. This may mean we are in for a minor bounce or a few days of stabilization. January's lows beckon though and the weakest link, the NASDAQ, is expected to continue to struggle.

Any upside over the next day or two should be used to add to short positions as the path of least resistance remains lower.

Outlook:

The rally attempt failed miserably and the bottom of this market is poised to fall out. A retest of January's lows seems likely at this point.

Market Set To Get Ugly Unless Fed Disappoints Shorts Once Again

Unless the Fed steps in with another surprise rate cut, this is a market set to get real, real ugly this week. Short side risk has been reduced significantly by last week's failed breakout.

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Outlook:

The rally attempt failed miserably and the bottom of this market is poised to fall out. We doubt the lower B-band can hold and January lows are in jeopardy of failing as well.

*Risk on the short side is low today and it is our recommended position. However, should the Fed plunge protection team steps in once again and lower rates to stop a disaster in the making, short positions will likely fail again. So, keep a close watch on the headlines today. Short, but be ready to cover quickly if the Fed lowers rates in an emergency rate cut.

Trend Hangs Vicariously on S&P 1,360

The market's near term uptrend sputtered yesterday. In actuality, it never showed a great deal of strength to begin with.

Nevertheless we can't call this a roll over yet. The SPY closed right above support yesterday. If the S&P 500 moves below $1,360 we are looking at a retest of the lows and it would be best to close all long positions in all groups other than gold and oil. If it holds here then the rally back to the 50-week average is still in play.

Outlook:

The outlook has switched back to neutral. Everything is dependent on whether the S&P can hold $1,360.

*Stick to inflationary sectors such as oil and metals.

Watching and Waiting

No major changes to the risk table today. We continue to look for higher prices into the end of the month and for the first few days next month.

Outlook:

The SPY followed through yesterday while the QQQQ remains stuck below resistance. We continue to look for meaningful follow through. That said, the market's near term trend is up and pullbacks should be buying opportunities until the SPY tags overhead resistance at its 50-week average.

*Stick to inflationary sectors such as oil and metals.

Gold Breaks Out On Weak Dollar

The Euro broke out in a big way yesterday, and gold responded in kind. Inflation is a big driving force in the commodities sectors and a strong bull market in those sectors is once again reasserting itself.

Jesse Livermore once remarked that his biggest mistake was becoming bearish on the entire market when 2-3 sectors were broken down. This is a good lesson to pay attention to here. While the broad market is in a confirmed bear market, the oils, metals, and ag are all in strong up trends and there is no sign that these trends will let up any time soon.

While the SPY is in a slightly bullish up tick, it gives the bull market in commodities virtually no headwind to fly into.

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Outlook:

The SPY followed through yesterday while the QQQQ remains stuck below resistance. We continue to look for meaningful follow through. That said, the market's near term trend is up and pullbacks should be buying opportunities until the SPY tags overhead resistance at its 50-week average.

*Stick to inflationary sectors such as oil and metals.

SPY Breaks Higher: Looking For Follow Through

The SPY broke free from its range yesterday, but continues to have resistance at the $137.50 level. If it can follow through higher, it should be free to run to $142-$143.50, giving the bullish set ups we are finding a good boost.

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Outlook:

The SPY broke free of its pennant consolidation area yesterday. However, with the daily swings that we have seen in this market, we need a follow through day before we can get too excited about the rally prospects. Nevertheless, things are shaping up for a rally.

Market May Be Ready To Break Higher

The trading range we are now in has been one of the most persistent we have seen in several months. On Friday prices broke through lower support, but the effort on the part of the sellers was weak at best as volume levels remained low throughout the day. Then, during the last 1/2 hour, prices spiked back up into the range on high volume.

We have to give the win to the bulls on Friday for averting a breakdown and for the strong volume into the close.

The trend remains transitional but we have adjusted our position to light long due to the increasingly high probabilities that this market will experience a strong short squeeze due to all the failed break downs recently. Short traders are getting frustrated and if the market can break higher, there should be a lot of short covering fuel to power the market sharply higher.

Add to that, we should see new money come into the market, which always happens at the end of the month when funds receive capital inflows from 401k plans, et al.

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Outlook:

The current outlook now depends on the direction the continuation triangle pattern breaks. If it breaks to the upside, then we expect prices to rally into the falling 50-week average for a high probability shorting opportunity. If prices break lower, prices may retest January lows for a high probability buying opportunity.

Oil Rolling Over

The market's trading range continues.

Everyone surely sees the pennant formation that the S&P is trading in and as such, everyone is waiting to trade the breakout or breakdown of this pattern. Keep in mind that when everyone is looking at the same pattern, that pattern has a high probability of not working out the way everyone expects it to. It's best to avoid making guesses here and just react once the market shows its hand.

Meanwhile, oil rolled over on heavy volume after once again testing overhead resistance. A trip back to support looks likely here. And, with oil stocks continuing to diverge negatively against the price of oil, shorting the group looks like a good strategy while this market waits to make up its mind.

Outlook:

The current outlook now depends on the direction the continuation triangle pattern breaks. If it breaks to the upside, then we expect prices to rally into the falling 50-week average for a high probability shorting opportunity. If prices break lower, prices may retest January lows for a high probability buying opportunity.

*Until the market breaks one way or the other, a cash position is preferable. However, we see good shorting set ups in the oil sector right now and long positions that have been working well, continue to look good, so if you pick and choose there are some potential long side plays as well.

What Refuses To Go Down Will Probably Go Up

Yesterday's refusal to go down in the face of bad news (inflationary CPI figures) indicates that this is a market that wants to go higher.

The stalemate on the SPY broke down at the open, but then proceeded to trade higher throughout the day, keeping prices well within the current trading range.

Even so, we are much more bullish on the market's outlook following yesterday's action for two reasons. First, as already mentioned, the market refused to break down when it had a valid reason to do so. Second, a large number of stocks are behaving quite bullishly. Most are inflationary stocks, like oil and metals, but good behavior is good behavior and it's something that we haven't seen for quite a few months now.

This doesn't mean go out and buy everything in sight. Rather, be choosy and carefully buy pullbacks in the strongest sectors, including metals, Ag, oil exploration and a handful of other sectors that are working in this environment.

Later today, if we get the chance, we will highlight one or two strong sectors here in this blog.

Outlook:

The current outlook now depends on the direction the continuation triangle pattern breaks. If it breaks to the upside, then we expect prices to rally into the falling 50-week average for a high probability shorting opportunity. If prices break lower, prices may retest January lows for a high probability buying opportunity.

Stalemate Likely To Resolve Itself Today

All eyes are on the contracting triangle pattern that has developed over the past couple of weeks. Until this pattern breaks, and probabilities are high it will be today, we will have a better idea what to look for over the next few weeks.

If prices break to the upside, then we may finally get the rally back up to the falling 50-day average we have been looking for. If it breaks lower, then look for a test of $131.50 and then possibly $126.

The intermediate and long term trend is down, so probabilities favor a downside breakdown. Upside breakouts should be looked at suspiciously until the price holds for more than an hour or two. An early break higher may get faded. A breakdown could also get faded, but the likelihood is much lower due to the fact the market is in a downtrend.

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Outlook:

The current outlook now depends on the direction the continuation triangle pattern breaks. If it breaks to the upside, then we expect prices to rally into the falling 50-week average for a high probability shorting opportunity. If prices break lower, prices may retest January lows for a high probability buying opportunity.