Last weekend, in my Market Forecast, I wrote:
"For the new week, it looks like the market is entering into a bearish phase. Although a bearish formation is not established in its daily MAs yet, the sentiment on the market is very bearish. There is a slew of new economic data coming in next week, starting with personal spending and construction spending on Monday, and ending with the latest unemployment report on Friday. Notable earnings include XOM on Monday, BP on Tuesday, and CSCO on Wednesday. The market has dropped very fast and far in the past 2 weeks, and could be due for a quick bounce. Although depending on if there's positive news to support the bounce, the downward momentum can easily wipe out any upwards movements. What we'll be looking for is whether SPX 1080 and Nasdaq 2150 can provide support for the market to start making higher lows and higher highs. However, since the daily MAs have already started to point down, we have to be careful at the resistance levels. SPX 1100 and Nasdaq 2200 could have now become resistances. If SPX 1080 and Nasdaq 2150 do not hold, the market can fall a lot further. Unless something can change the sentiment on the market, for example, more clarity on the bank regulation issues, or substantially better economic data, the market will have a tough time holding the supports."
I also added,
"The best scenario for the market right now is a bounce above 1100 and trade within 1100 to 1140 for a while, perhaps for a month. The worst scenario is that the market breaks below SPX 1080 and fall back all the way to 1000. In the 2nd case, I think we could see 1100 tested one more time; and, if it fails, the downward momentum can accelerate. For scenarios in between, there are soft support levels on SPX every 20 points or so."
Once again, the market behaved as forecasted. We saw the market bounce back to test that SPX 1100 level. But, once the SPX 1100 failed to hold, the market slumped downward with accelerated speed! On Monday, the market bounced as buyers came in after 2 weeks of harsh selling. On Tuesday, they market rallied higher to test SPX 1100 as the latest housing data was favorable and Volker's ideas of possible bank regulations were met with doubts. SPX closed 3 points above 1100. On Wednesday, the market stuttered as it waited for the latest jobs reports. SPX fell back below 1100. On Thursday, the jobless claims came in higher than expected; and, the selling resumed. After just half-an-hour from the market open, SPX sank below its support level, 1080. It continued to fall until supported by SPX 1060 (remember the support levels "every 20 points or so"). On Friday, even though the unemployment report was favorable, the downward momentum was simply to much for the buyers to handle. SPX dropped as low as 1044.5 before bouncing back to close in the green in the last 2 hours of trading.
As the market was very volatile, we did not trade much. Our positions swung back-and-forth and had a hard time keeping the gains, even though we played on both sides. Here were the closed trades:
12:14 | HappyTrading AMZN ($116.60) Sold to Close 02P115 Feb 115 puts, at $3.05 -16%
12:12 | HappyTrading FCX ($69.00) Sold to Close 02P65 Feb 65 puts, at $1.40 -28%
10:43 | HappyTrading FCX ($66.20) Sold to Close 02P65 Feb 65 puts, at $2.40 +23%
07:13 | HappyTrading GOOG ($531.00) Sold to Close 02C550 Feb 550 calls, at $3.70 -55%
For the week, the Dow was down 55.1 points; SPX fell 7.68 points; Nasdaq slid 6.23 points. Both gold and oil traded lower. The dollar climbed to a new 6-month high! This evening, at the time of this writing, Asian markets were mixed, but still mostly weak. Gold and oil were trading slightly up. Let's see how the US market looks after Friday's close:
SPX
On Friday, SPX added +3.08 points to close at 1066.19. Its daily MAs and MACD went lower. It ended the week below the 1080 level.
Nasdaq
Nasdaq gained +15.69 points to close at 2141.12. It closed below the 2150 level. Its daily MAs and MACD were also down.
Both SPX and Nasdaq closed below their respective support levels (SPX 1080 and Nasdaq 2150). Both are showing newly established bearish formation in their daily MAs. VIX started the week lower, but, came back to close above 25. For the new week, the market could stage a bounce and bounce off of SPX 1060. Whether or not the bounce is meaningful will depend on if SPX can bounce above its 10-day MA, and then, SPX 1120 (the next resistance). If SPX 1060 does not hold, we could see the market test SPX 1040 before bouncing. So, how the market opens on Monday will be very important. The dollar is very strong, but, perhaps needs a breather. Commodity sectors could see buyers rushing in if the dollar pulls back. Financials are on the verge of breaking lower, so, we'll have to monitor them carefully.
Sector Watch
UUP
UUP closed above the $23.6 level last week. It daily MAs are showing a new bullish formation. However, its MACD is looking a bit toppy. If UUP pulls back below that $23.6, we could see the commodity sectors bounce for a few days. Then, we'll have to re-assess the situation.
GLD (gold)
GLD is trying desparately to keep above the $104 level. Its daily MAs have turned lower and a new bearish formation is imminent. If GLD rallies off of the support at $104, it'll still need to get above $110 to turn bullish. A big game changer lies in China. If China formally signals its buy on gold, gold should jump and the dollar will drop. This could be a quick boost to the global financial markets and would turn the bearish sentiment around in a flash.
XLF (financials)
XLF closed below its support at $14. Its daily MAs are just curving into a new bearish formation. If XLF does not bounce back above $14, it could be in trouble. It will need to go above $14.6 to turn neutral, above $15 to be bullsih. If GS gets above $155, it would be a good sign for the sector.
BTK (biotech)
With most sectors turning bearish, the biotechs is one of the few sectors that still hold a "more" bullish chart. BTK closed above its 30-day MA last week. BTK rallied to a new all-time higher earlier in the week, above the 1,000 mark. Thursday's big market drop pulled the biotech stocks back as well. It may have helped to create some buying opportunities. AMGN, CELG, and OSIP still look health after the pullback.
Good night and HappyTrading! ™
