In last week's Market Forecast, I said,
"For this week, with SPX and Nasdaq back above their key levels (SPX 900 and Nasdaq 1700), things are looking bullish again! Most sectors participated in today's rally, which is a good sign. With VIX heading back into the 20s, this rally looks to have more legs to run higher."
After Monday's run up, the market struggled to go higher. On both Tuesday and Wednesday, the market climbed higher early but closed in the red. VIX briefly sank below 27 on Wednesday and started climbing. On Thursday, the market finally gave in to more profit-taking. SPX tested 880 and bounced back. Friday saw more choppy trading and the market ended flat. We positioned ourselves mostly in cash and still scored very nice trades (click here to see last week's trades).
Believe it or not, the market still eked out a small gain last week. The Dow ended up +8.68 points; SPX added +4.12 points; Nasdaq gained +11.87 points. However, this rally does look to be in jeopardy. Let's see how the market indices look after Friday's close:
SPX
On Friday, SPX slid 1.33 points to close at 887. It closed just above its 30-day MA. The MACD went down.
Nasdaq
Nasdaq lost 3.24 points to close at 1692.01. It also closed just above its 30-day MA. The MACD was lower.
Both SPX and Nasdaq barely stayed above the 30-day MA. VIX went below 30 early in the week, but, managed to close above that level, at 32.63. After sinking to new lows early in the week, ultrashort ETFs, such as SRS (real estate) and SKF (financials), saw some buying on Wednesday; but, they still finished the week lower. For the new week, things could get more interesting. Although this rally looks to be struggling, I'm not necessarily convinced that it is done. We are mostly in cash and will be prepared to trade on either side. If the market indices break the support at the 30-day MA, we may see the slide accelerate. SPX 875 will be an important support level; for Nasdaq it will be 1650. The actions this week could be very important in determining the market's next move. Major sectors seem to share similar looks as the market indices.
Sector Watch
XLF (financials)
XLF barely closed higher last week. It stayed above its 20-day day MA, but, the 10-day MA turned slightly lower. GS broke above $140 early in the week (we caught a piece of that action), but, closed below that level. Most other financials also experienced similar trading actions, although ICE and CME were stayed pretty strong (we also found some nice trades in these). BLK, oddly, was weak early in the week and made some strong moves late in the week, gaining +4.21% alone on Friday. The support at $11 for XLF will be important; on the upside, it still needs to break $13 to go higher.
USO (oil)
USO continued higher last week. $35 looks still to be the next resistance. However, most energy sectors traded with the overall market and barely hung on to finish green. UUP (dollar ETF) closed below $24.5, an important support, last week. USO and UUP still demonstrate a very distinct inverse relationship. If UUP continues to drop lower, USO will mostly likely run higher.
GDX (gold miners)
While the market struggled last week, GDX broke out higher. We have been monitoring this sector, as we caught a good trade on GOLD. While GDX still looks strong, GLD is starting to look a bit toppy. AEM and GOLD still look strong, and we'll see if these can make another move higher.
MOO (agriculture)
MOO was another strong sector last week. It took a one day break (Thursday) and bounced right back on Friday. DBA (agricultural commodity) also broke out. POT, MOS, CF all look a bit toppy, while SYT is still looking strong.
With uncertainties everywhere in the market, it seems best to be in cash. There's really no need to act early under these choppy market conditions. Until the market either breaks higher or breaks down, it will likely be a stock-picking market environment. We'll continue to trade carefully and lightly until the direction is clear.
Hope you have had plenty of fun and rest this long weekend!
Good night and HappyTrading! ™
