Last weekend, in my Market Forecast, I said,
" For the new week, after treading water for the past 2 weeks, the market is starting to slide on to the bearish side. After not being able to break higher during the week, both SPX and Nasdaq ended below the 30-day MA. Further, the MACD is curving down again. These are bearish signs. The drop on Thursday was big, although the volume was not particularly high. We could see some bounces on Monday morning. But, without any positive news, the market may sell into any strength. VIX could easily test 30 from here. SKF and SRS have been trapped very tight ranges since the beginning of May, and could start to move higher. SKF's breakout level is $46 and that of SRS is about $22.5. Financials and energies are barely hanging on. If these sectors break to the downside, SPX should test the 860-880 region. Nasdaq's nearest support is at 1750."
Indeed, everything happened as scripted. We first made money on the downside for most of the week, and, were able to capture a nice trade on GOOG on the upside. On Monday, the market dropped fast at the open and bounced for the rest of the day. VIX tested 30, but, did not close above. On Tuesday, the market turned lower to test the main support levels. We cashed in on the BIDU and MA puts. VIX managed to close above 30. On Wednesday, we traded SKF calls, as the market slumped lower to test SPX 870, and cashed out the downside plays at day highs. When the market bounced, we got into a longside play on GOOG. On Thursday, the market pushed higher, and we took partial profits on our GOOG calls. On Friday, we cashed out the rest of our GOOG calls at a even higher value and watched the market churn (we also did some quick trades on POT puts, which were discussed in our Trading Room).
It was not a nice week for the market, but, a very nice week for our happytraders! For the week, the Dow was down 134.22 points; SPX slid 17.3 points; Nasdaq fell 40.49 points. The Dollar ended basically flat, but, oil took a bit drop. Gold also slumped lower. Let's see how the market looks after Friday's close:
SPX
SPX slid 3.55 points to close at 879.13. The daily MAs and MACD were lower.
Nasdaq
Nasdaq added +3.48 points to close at 1756.03, above the 1750 level. Its daily MAs and MACD went down.
The market was definitely testing the lower end of the recent trading range last week. The bulls are desparately trying to hold on to the support levels. VIX tested 30, but, did not close above last week. But, both SKF and SRS closed above the above-mentioned breakout levels. SPX and Nasdaq both closed near their key support levels: SPX 880 and Nasdaq 1750. At the time of this writing, Asian markets were mostly lower. For the new week, the market still looks very vulnerable. The market would have to overcome a lot of downside pressure to push higher. Goldman Sach's (GS) earnings on Tuesday morning could decide the market's near-term fate. XLF (financial ETF) is hanging on by a thread. Oil also looks like it could continue lower, which does not bode well for the energy sectors. With weakness in the financials and energies, the market can easily push lower. SPX 860 and Nasdaq 1700 could be tested if the market sinks again.
Sector Watch
GLD (gold)
GLD closed below the key support at $90 last week. Gold miners were also weak. We could see $88 tested soon on GLD. AEM, ABX, and GOLD are all looking weak.
USO (oil)
USO broke below the $33 support last week. It is now displaying a newly formed "bearish" formation in its daily MAs. $32 is a support. OIH (oil services) saw buyers come in at just below $90, and, was able close above that level. However, if USO pushes lower, OIH could test $90 again. Below $90, $85 is the next support.
XLF (financials)
XLF tested $11 last week and managed to hold above. As mentioned earlier, GS's earnings on Tuesday morning will likely decide where the financials will go next, which in turn, could decide the direction for the broader market. GS, WFC, JPM, BAC are all haning out just below their respective daily MAs. It is a "neutral" pose with a "bearish" bias.
SOXX (semiconductors)
SOXX was down slightly last week. It tested 250 and bounced up. But, it still closed below its daily MAs and the daily MAs are showing a new bearish formation. If SOXX gets weak again, Nasdaq may have a hard time holding that support at 1750.
Most sectors are trying hard to stay in the neutral gear, perhaps just before the bulk of the earnings start to kick in. But, they all still carry a bearish bias. At times like this, it may very well be easier to make money on the "downside". Unless we get some very positive news, especially from the earnings reports, the market seems to want to test the lower support levels.
