Last weekend, in my Market Forecast, I wrote:
"If the indices close below the 10-day MAs, it could draw more profit-taking. As mentioned before, VIX is trying hard to keep the support at 28. But, it is still below 30; so, there is still not a lot of selling pressure, at least not yet! There really needs to be some external forces to push the market one way or the other... We do have to be careful with the possibility of the market simply being stuck in a tight range. Since the market has been on an extended recovery run, but, sidelined money seemes to just keep on coming in, the market might no go anywhere. The lower support to watch is the 10-day MA on the market indices. The higher resistance levels are SPX 950 and Nasdaq 1860. We're mostly in cash and should not feel the need to trade in a hurry"
The market was indeed stuck in a tight range. It started with a big down day on Monday, pushing the indices below the 10-day MAs. But, after Monday, the market basically did not go anywhere. On Tuesday, the market slid a little more. But, it spent the rest of the week climbing back up. The trading was volatile and tight.
For the week, the market did end lower. The Dow was down 259.53 points; SPX lost 24.98 points; Nasdaq fell 31.33 points. Both oil and gold fell slightly. Commodity sectors were especially weak. Agricultural stocks took a big tumble. Most energy stocks also suffered a solid drop. Financials and techs were weak early in the week, but, made some bounces later. Health care and some select biotechs bucked the trend and broke out higher. Let's see where the market stands after Friday's close:
SPX
On Friday, SPX added +2.86 points to close at 921.23. It closed above the 30-day MA. The MACD went down.
Nasdaq
Nasdaq gained +19.75 points to close at 1827.47. It close just below its 10-day MA. Its MACD was slightly lower.
After a 3-month rise and a quick 3-day drop, the market bounced back to more neutral grounds within the recent tight range. During the week, VIX bounced almost to 33, but, closed back down below 28. SKF (financial ultrashort ETF) went above $45 and closed below $42. SRS (real estate ultrashort ETF) managed to closed just above $20. Asian markets are trading higher at the time of this writing. For the new week, we have the Fed meeting on Wednesday. The market still seems undecided and is showing mixed signals. VIX, closing below 28, could start a new leg down. On the other hand, energy sectors are showing weakness. Financials are in neutral gear and could go either way. Techs are stronger, but, have not been able to break higher. SPX barely hung on to its 30-day MA last week. Nasdaq did a little better, closing above its 20-day MA. What we'll been watching in the new week is whether the indices can push above their 10-day MAs. On the down side, we'll keep our eyes on the 30-day MAs for support. For SPX, if the 30-day MA is broken, 900 could be tested. In order for the market to go higher, I think we'll need to see strength in the commodity sectors.
Sector Watch
XLF (financials)
XLF ended last week right at its 30-day MA. XLF seemed to have some support at $11.5. $13 is still the resistance to break. BAC actually looks quite bullish, while MA is looking quite weak. GS seems to be staying neutral for the time being.
XLE (energy)
XLE had a big drop last week, closing below its daily MAs. It also closed under the support at $50. This sector is getting dangerously weak. VLO has been leading the energy stocks lower. HES, DVN, and APA all took a tumble.
BTK (biotech)
BTK only suffered a small loss last week as leaders such as AMGN and CELG broke out higher. BTK closed above its daily MA, and could create the next leg up. Its MACD just turned higher, although a new bullish crossover has not formed yet.
XME (metals and mining)
XME managed to close above its 30-day MA last week. I think this sector could be an important key for the market this week, as commodity sectors could give clues to how strong the industrial demand is. X, FCX, ATI have all taken a substantail retreat from the recent height.
Overnight, there are some merger news in Europe. Xstrata is expressing interest, again, in merging with Anglo American in a $68 billion deal. NAB (National Australia Bank) will buy the Australian businesses from Avia, a British insurer, for $660 million. We'll see if these merger news will inspire new speculations in the US market.
Good night and HappyTrading! ™
