Last weekend, in my Market Forecast, I wrote:
"For the new week, how the market does on Monday will be very important. On Sunday, Euro partners agreed to a $145 billion bailout plan for Greece. We'll have to see how the market reacts to that piece of news. But, there are potentially more negative news to weigh on the market. Financial reform and the case(s) against Goldman Sachs are bound to have new developments. Australia's new mining tax could pressure the mining sector. In addition, the oil spill disaster off the Gulf Coast will likely continue to haunt the oil services industry. Thus, upside moves could be limited. The market will have to fight its way back above the daily MAs and test the recent highs before going higher. The market is already toppy. On the downside, once the market breaks below the 30-day MA, the bearish sentiment could grow."
Indeed, the market tried to rally on Monday, but the upside was limited. It could not close above the 10-day MA! On Tuesday, the market took a sharp dive, spooked again by problems in Europe. Both SPX and Nasdaq closed below their respective 30-day MAs and the sentiment turned bearish. On Wednesday, the market traded slightly lower, trying to digest Tuesday's sharp fall. On Thursday, the fall continued and the downward momentum built up. At one point, the Dow took a 600-point drop in just 15 minutes before bouncing back. We cashed in on our plays on the shortside. On Friday, the market slumped even more. We had been long on gold and short on the market. So, it was a very profittable week for our trades.
For the week, the Dow was down 628.18 points; SPX lost 75.81 points; Nasdaq stumbled 195.55 points. Gold rose to above $1200/ounce. On the other hand, oil fell to a 3-month low. At the time of this writing, Asian markets were mixed. It seems like some market were trying to bounce, but, the buying was limited. China continued to slip, down more than 1%. Let's see how the US market looks after Friday's close:
SPX
On Friday, SPX lost 17.27 points to close at 1110.88, just above the 110 level. The MACD and daily MAs all went lower.
Nasdaq
Nasdaq fell 54 points to close at 2265.64. Its MACD and daily MACD curved down.
With the sharp drops last week, VIX has risen back above 40! Both SPX and Nasdaq have already fallen below January's highs. Tonight, the European Union and the International Monetary Fund pledged a massive nearly $1 trillion defense package for the embattled euro. IMF has put up nearly $40 billion to help bail out Greece and appease investors' fears of a spreading European debt crisis. In addition, the Federal Reserve late Sunday opened a program to ship U.S. dollars to Europe in a move to head off a broader financial crisis on the continent. These combined international efforts perhaps further demonstrate just how serious the financial crisis is in Europe! For the new week, the momentum has completely shifted to the downside. We can see that the daily MAs in both SPX and Nasdaq are curving down. On Monday, we may see an attempt to bounce; others may call it a relief rally. First resistances will be SPX 1130 and Nasdaq 2300, both of which were tested on Friday morning, but failed. On the downside, the market could easily test the February lows, but it does have some soft supports along the way. Gold looks like it has more room to rise and can easily see a new all-time in the next coupld of weeks. Most sectors are showing the same weakness as the broader market. Let's take a look:
Sector Watch
GLD (gold)
GLD closed above the $118 level. It looks really strong. GLD may need to trade sideways around this $118 level for a bit, depends on how the investors react to the global efforts to help the Euro region. It does look like GLD can at least test $120 this week. Gold miners have run with the gold so far, but, be a little careful with them in a weak market.
XME (metals and mining)
Although coals have fallen considerable, XME itself is doing much better than the broader market so far. However, it has just developed a new bearish formation in its daily MAs. We should pay attention to downside plays in this sector. NUE, for example, has hardly fallen. ATI has also held up well.
OIH (oil services)
OIH has plummeted $25 since the BP/RIG explosion incident and the subsequent oil spill. As of tonight, the oil spill is yet to be contained. This whole industry's value could get cut in half, especially for the companies that specialize and depend on offshore drilling. I'm still looking for BP and RIG to test their respective lows during the 2008 slump, $35 and $40, respectively. Any news on the drilling bill being killed in Congress would pressure this sector even more.
XLF (financials)
XLF barely closed above the $15 level. There is a soft support at $14.75 just below $15. Believe it or not, GS actually outperformed most stocks last week, losing just above 2% for the whole week!! AIG also did well, sliding just $0.2 for the week! Credit card stocks fell and fell hard. AXP, V, and MA have all turned bearish. The exchanges (CME, ICE) are starting to feel vulnerable. If XLF breaks below $15, it'll add even more downward pressure on the broader market.
INX2 (internet)
INX2 has fallen especially hard last week, going from above the daily MAs on Monday, to basically the mid-point of January's high and February's trough. GOOG has fallen quite a bit. AMZN is finally breaking down and closed below $130 last week. PCLN dropped $45 from Monday's level and could be interesting if it gets any bounces. We have already gotten 2 doubles on NFLX and I think it has a lot more to fall.
Good night and HappyTrading! ™ 
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