Market Analysis

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guru-trading

Even though the S&P 500 has now broken through the 2002 low both the DJ 30 and the Nasdaq have not done so yet, in fact they the Nasdaq is a little ways off. As trading late Thursday and early Friday skirted with the 2002 lows on the DJ 30 buyers began to step in a little despite the Citi debacle which is a large component of the Dow. So it seems unlikely that the 2002 low will be broken on this leg down and a bounce seems imminent in the major indexes (although you should scratch that comment if Citi fails completely). Under these market conditions any bounce in equities will temporary leading to more selling around the 9700 level and the 11000 on the Dow. With the S&P 500 sellers will step in around the 960 and 1150 area. From another round of selling looks set to take place that will take the averages below the 2008 lows.



Crude Oil has experienced a huge correction from the highs of near $150.There is an enormous amount of technical support between $50 and $37 with many fundamental reasons to buy around these levels. Look to buy any sell off from here and even start looking at a small position at these levels as historically the winter lows have always been good entry points for a rally into the spring. A rally from here through the winter should leave crude oil between $75 and $67 area.
Many economists are using the “D” word like that is what we are seeing right now which is not true. Currently we are experiencing an extreme lack of confidence from the major players coupled with huge redemptions at funds, which is leading to a massive liquidation. There is a difference between liquidation and deflation. The central banks are printing money like there is no tomorrow which is going to avoid deflation during this current crisis, however what we should be concerned with is inflation especially in commodity prices. Commodities are nearing good entry points for a long term buy over the next few years. Farmers and miners cannot get the needed loans they rely on to buy equipment and fertilizers meaning a reduction in production. Sugar could be a great buy if it sees 10c again as crude oil is expected to rise again and manufacturers are looking for a cleaner and more socially responsible alternative to corn based ethanol.




The upward trend in the USD is highlighted here with the EUR/USD pair. I spoke a few weeks ago that we will be starting to see a top in the USD, and while I still stand by that analysis there is a potential for a selling climax down to the 1.21-1.7 area on this pair.
 
The S&P 500 has experienced a phenomenal week after rebounding from the lows of around the 750 area. Equities are now overbought on low volume, possibly signaling a pullback. Any pullback, however, should be viewed by aggressive traders as a short term buying opportunity as the levels 914, 950 and 994 are potential targets for an upward move. There is a great deal of open interest on S&P options at both 950 and 1000, signaling a potential move up to either of these levels by Dec expiration. A break below 857 on strong volume would cancel out a potential move upwards.
10 YEAR TREASURY NOTE
The money supply announcement on Friday did little to move the market, but bonds are definitely benefiting from a flight to quality trading mentality. However, although we are at new highs for the Dec. contract, the continuous contract is facing serious overhead resistance above 123. Although the fundamentals are amazingly bullish, for example there are now fears that unemployment could reach 9%, it has failed to close above this resistance. Any close above this level would signal a short term momentum buy.
GRAINS
Grains seem like they are trying to put in some kind of a bottom, yet it is still too soon to buy in. There is a potential for a good rally in all of the grains into next year, yet short term indicators are leading us to believe that a new low may be created in some of the grains, especially corn, which has been lagging behind soybeans and wheat in the recent months. Any break below the lows in the grain market should be used as an opportunity to build a position for a rally. With China offering support to the corn market over there, a potential strengthening looks set to happen after another move down.
GOLD
The terrorist attacks in India failed to sustain a bullish environment for the gold market causing gold to weaken into the weeks end. Gold is now technically oversold, and, on a short term note, fears of deflation, especially after the Chinese rate cut, will most likely lead to profit taking at some point this week, leading gold to test at least the 804 level and potentially the 757 area on the continuous contract. Yet, fears of deflation will only be short term fears, as the money supply is increasing at rapid rates, and as soon as it looks like the worst of the credit crisis is behind us inflation will become a major problem. This will be bullish for gold, so as gold sells off, look to start building a longer term position. The 757, 720 and 680 are buy areas.
BRITISH POUND
While the pound displayed some strength early in the week, it failed to break the resistance around the 1.55 level. With some of the weakest retail sales data since 1983, we cannot rule out a slide down back to the 1.515 level and possibly the 1.4985 area. This should prove to be an excellent risk reward for a long trade. Aggressive traders this week will look to short any strength with a stop above 1.553 and look to buy back around 1.515.
EURO
With the Euro losing ground against the USD after disappointing unemployment numbers late this week, there is the potential for the selling to continue. However the Euro is sitting on some support and 1.25 needs to be taken out if there is going to be a spike down to the 1.21 -1.17 area. Both Monday and Wednesday have big news coming out of Europe so there is a potential for a volatile week. Any strong sell off at this point should be viewed as a selling climax and any reversal from either 1.25 or 1.21 should be bought.

Cheers
 
With the Baltic Dry Index sitting at its weakest level since 1999, things shouldn’t be worse for shipping companies and commodity exporters. Letters of credit are a thing of the past creating a huge dilemma for commodity exports. Businesses are struggling with cash flow, and without letters of credit there is little that can be shipped these days as is reflected in the Baltic Dry Index. Yet, over the last few days shipping stocks such as DRYS & NAT have started showing signs of strength. What does this signal?
Grains look like they are trying to put in a bottom, equities seem to be displaying a cautious confidence that credit is starting to loosen and now shipping companies are showing strength. The bottom may not be in place just yet but we do seem to be close.
 
Hi all, my first post in here. Started day trading a year ago, then about to shift to position and mt trading soon. Considering taking positions on next pullback(hopfully Friday) if it is a higher low : AAPL, POT, BTU, WFC, DNA, CELG, COSTCO, FSLR. Over the we was talking about it to bank trader who often shows on bloomberg, he strongly discouraged me to step in now arguing that figures would be far uglier than priced in so far for january. Would appreciate you opinion on those stocks as I start beeing doubful now. Obviously I would rather missing a part of the increase instead of enjoying the full loss :D thanks.
 
Quote from sofrench:

Hi all, my first post in here. Started day trading a year ago, then about to shift to position and mt trading soon. Considering taking positions on next pullback(hopfully Friday) if it is a higher low : AAPL, POT, BTU, WFC, DNA, CELG, COSTCO, FSLR. Over the we was talking about it to bank trader who often shows on bloomberg, he strongly discouraged me to step in now arguing that figures would be far uglier than priced in so far for january. Would appreciate you opinion on those stocks as I start beeing doubful now. Obviously I would rather missing a part of the increase instead of enjoying the full loss :D thanks.
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I am looking at a possible rally from these levels but still within a bear market and the likelehood of lower lows next year. I would be patient if you are lookng for a longer term investment.
 
While evidence is mounting that a rally is going to happen soon, equities are still extremely weak and this should be nothing more than a “suckers rally”. The problem of confidence still remains, there is hardly any confidence between banks. Until the inter bank lending crisis eases then the knock on effect will mean that the economy will be starved of credit, slowing growth.
The USD should start to sell off this week so look to build a short position on any strength it may exhibit early on with a stop loss above last weeks high.


S&P 500

The predicted sell off early this week did indeed prove to be a buying opportunity in the SP 500. It now needs to make a decisive break above 877 to be able to make a solid follow through on Friday’s late bullishness. The market should see higher prices this week unless there is some shock announcement that could shock the market. 950 still remains a viable target to the upside.

GRAINS

Grains gave way to the short term weakness and now look to be experiencing a selling climax. Wheat now looks like it will hit just below 450 on the continuous contract before any bounce can happen. Corn closed on some support, yet it has not shown much evidence of rebounding, and now looks like the continuous contract could sell off to 260. No new short positions should be added at these levels as short positions have grown dramatically over the last few weeks in the grain markets which could lead to a volatile short covering rally.

CRUDE OIL

It seems only a matter of time until the $37 level is hit. How it reacts at this level will be an important gauge of how the economy is expected to perform next year. There are still a considerable amount of long positions on CL so if the $37 level is broken then it seems that $26 will be taken out before long.
 
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