Last weekend, in my Market Forecast, I said,
"For the new week, the market will start on some shaky grounds. Once again, it's mostly about the earnings! On Tuesday, before the market opens, C reports, and after the market, we'll hear from IBM. These could set the tone for the broader market until Thursday, when GS reports in the morning, while AXP and GOOG deliver in the afternoon. UNP also reports on Thursday morning and good give some more clues on the economy; its competitor CSX will have reported after the market on Tuesday. On Friday morning, GE will present its report card. So, it's going to be a busy week with numbers from some key bellweather companies. On the top, we'll still be eyeing that SPX 1150 level. But, if SPX falls below 1120, the market could turn bearish."
In addition to earnings, two other big events came in to play. One came from China, the other from President Obama. On Tuesday, investors brushed aside C's earnings report and rushed back into the market, driving stocks higher. After the market, IBM reported solid earnings, but investors took profits on the news. On Tuesday night, China announced that it will try to prevent a "bubble" in its economy by curbing lending from the banks. Asian markets plummeted overnight. On Wednesday, the US market followed. On Thursday, Obama proposed setting new regulations on big banks to limit risk. This scared the markets even more, resulting in SPX closing just below that 1120 level! As forecasted, market sentiment turned bearish. On Friday, things turned ugly in the afternoon, and stocks slid into the close! However, we had a fairly good week. First of all, we didn't trade as much, as the market was very volatile. Secondly, we traded on both sides carefully.
For the week, the Dow was down 436.67 points; SPX fell 44.27 points; Nasdaq slumped 82.70 points! Both gold and oil dropped harshly on the news from China. At the time of this writing, Asian markets were mostly lower, with Hong Kong down more than 1%. Gold was trading slightly higher and oil was flat. Let's see how the US market looks after Friday's close.
SPX
On Friday, SPX fell 24.72 points to close at 1091.76, below the 1100 level. Its 10-day MA and MACD turned down.
Nasdaq
Nasdaq lost 60.41 points to close at 2205.29, just above the 2200 level. Its 10-day MA and MACD curved lower.
Both SPX and Nasdaq fell sharply last week, losing the gains made since December 09's breakout in just 2 days! VIX has risen considerably, jumping from 18 to touching 28 in that same 2-day period! For the new week, the market is in danger of breaking down into a "correction". Besides more earnings reports, FOMC meeting is on Wednesday and the Senate will determine whether Bernanke gets to keep his seat as Fed's Chairman. The week will likely be volatile, especially the beginning. Before the week even begin, AKS reports on Monday morning, which could move the miners. Miners have some downward momentum right now, so, the report will have to be overwhelmingly positive to get positive reactions. Monday after the market, we'll hear from AAPL and TXN with their earnings. On Tuesday, we'll likely be dealing with reactions to AAPL and TXN earnings, which then, takes us right into the FOMC meeting. It's going to be a crazy week as bulls and bears fight it out to establish the next direction. SPX will have to hold the 1100 level to hold the bullish trend, and Nasdaq needs to hold the 2200 level. Below these, we're looking at SPX 1080 and Nasdaq 2150 as the nearest support.
Sector Watch
UUP (dollar)
UUP popped last week to test the $23.2 level. It was not able to break that resistance. UUP is at the upper end of its trading range for the past few months. Wednesday's FOMC meeting could send it back down, as it is unlikely that Fed will raise rates, especially with China's effort on preventing a bubble in its economy.
GLD (gold)
GLD fell back to test the $106 level. It bounced back and closed just above $107. Its MACD is still a bit weak. But, its daily MAs just formed a new bullish formation, although not a strong one, yet. Going above $110 should allow GLD to regain the upward momentum and turn the 10-day MA back up.
USO (oil)
USO had a sharp fall last week, closing just below its daily lower BB. USO will have to bounce above $38 to just stay neutral. There's a support at $35, but, if it does go to $35, it will probably not hold this time.
SOXX (semiconductors)
SOXX has come down quite a bit in the past couple of weeks, since INTC's earnings. I'm watching this sector carefully, as it is an important sector and can give clues as to whether this pullback will turn into a correction. There's a support at 325. TXN will report on Monday afternoon, and ALTR reports on Tuesday.
XLF (financials)
XLF took a nosedive after President Obama's announcement on potential bank regulations. It is once again below $15 and looks to test the support at $14. If this $14 level does not hold, XLF will likely turn bearish. So, this week will be a very important week for the financials.
Be very careful this week, with VIX back above 25, things are bound to be volatile. Vix may need to come back down of Monday, after jumping 10 points in the past 3 session. I'll be looking for some quick bounces on Monday. But, before the FOMC meeting and the confirmation of Bernanke's next term, buyers will probably be shy to stay in. So, we'll have to stay nimble and will not be shy to play puts if the downward momentum picks up.
Good night and HappyTrading! ™
