The stock market often closes a week in the middle of a "perceived primary-trend range." SPX closed at about 1,234 Fri, which is between a multi-year Fibonacci level at 1,253 (i.e. 38.2% retracement level from the peak in 2000 to the trough in 2002) and the 20 day MA at 1,212 (which was general support over a recent rally).
It's possible, SPX can rally to 1,253 short-term. However, longer-term (perhaps in Aug and Sep), SPX seems destined to fall sharply. A Goldilocks economy (of neither too hot nor too cold) is priced-into the stock market, and if any future economic data show either output growth has slowed more than expected or inflation has risen more than expected, then massive selling may take place.
There are several intermediate-term technical indicators that make me cautious. VIX (S&P 500 Volatility Index) shows an extreme level of complacency. VIX fell below 10 last week, to a 12-year low. Consequently, the SPX to VIX ratio hit an all-time high last week. Moreover, both the Transport and Utility Indices to VIX ratios have rocketed at parabolic rates recently, to over 50% beyond previous year's highs. Also, a ratio of large cap to small cap stocks (e.g. S&P 100 to Russell 2,000) is near a multi-decade low, which indicates big institutions, who tend to buy large cap stocks, are not convinced of the rally. Moreover, the SPX to U.S. Dollar ratio is near a historically high level. There's typically an inverse relationship between the U.S. stock market and the U.S. dollar, because a weaker dollar spurs export growth, which is normally bullish for the stock market. The high ratio indicates it's more likely the stock market will fall, since the dollar depreciation has stabilized for over six months, at far lower levels than a few years ago, and then risen somewhat recently.
SPX has open gaps at 1,221, 1,174, 1,143, and 1,138. Nasdaq also has several open gaps, including one at 1,905, which is currently 275 points lower. The stock market has been a market of deep rises and deep falls. For example, just over the past 13 months, Nasdaq fell 305 points (in two months), then rose 440 points (in four months), then fell 300 points (in four months), and then rose 300 points (in three months). Moreover, VXN (a Nasdaq volatility index) rose only six to nine points over the two deep falls, and declined from 28 to 12 (an all-time low), over the past 13 months, which made it a particularly unforgiving short-term trading market.
Economic reports next week are: Mon: Existing Home Sales, Tue: Consumer Confidence, Wed: Durable Goods Orders, New Home Sales, and Fed's Beige Book, Thu: Unemployment Claims, Fri: GDP and GDP Price Deflator, Employment Cost Index, Michigan Consumer Sentiment, and Chicago PMI.
Notable earnings next week include:
Mon: AXP TXN XRX PBI CEGE CD
Tue: AMZN DD SEBL WWY BIIB IMCL X N VLO LMT BDK GLW SUNW SE SWY MDG RFMD MCHP SSTI NANX
Wed: BA AHC COP CSX CL SBUX K KMG MSO NEM CHIR OSIP CRA FON HMC HCA
Thu: BMY GSK ELN GP XOM APA KLAC SYMC XMSR WMI BR RTN AET PD AU ABX KGC PAAS ZEUS GR WEN JNS DCX
Fri: CHV BHI AEP ADM BWNG
Large caps may outperform small caps over the next few months, i.e. small caps may fall greater than large caps. So, IWM (Russell 2000) and SPX (S&P 500) puts may be better than QQQQ (Nasdaq 100) and OEX (S&P 100) puts. With volatility levels at all-time or multi-decade lows, the steep decline in volatility, since the cyclical bull market began in Oct 2002, may shift into an uptrend. So, market conditions may improve for short-term traders, including daytraders.
Arthur Albert Eckart is the founder and owner of PeakTrader. Arthur has worked for commercial banks, e.g. Wells Fargo, Banc One, and First Commerce Technologies, during the 1980s and 1990s. He has also worked for Janus Funds from 1999-00. Arthur Eckart has a BA & MA in Economics from the University of Colorado. He has worked on options portfolio optimization since 1998.
Mr Eckart has developed a comprehensive trading methodology using economics, portfolio optimization, and technical analysis to maximize return and minimize risk at the same time. This methodology has resulted in excellent returns with low risk over the past three years.
For some "long term" would mean holding a stock position... Read More
An investor can find and research the best stock on... Read More
With the stock market stubbornly refusing to settle down and... Read More
For the last few weeks we have seen the stock... Read More
How many times has this happened to you? You're at... Read More
The trading method you employ to approach the stock market... Read More
Analyzing growth stocks is an important focus for any investor.... Read More
"If you don't know where you are going, any road... Read More
Professional stock options traders use the term lean to refer... Read More
In 1960 an engineer working for a watch company in... Read More
The Law of Chaos is the theory of random unpredictable... Read More
During the day I watch CNBC-TV, the stock market channel.... Read More
I use the P/E ratio as a secondary indicator for... Read More
The Surgeon General of the United States says that smoking... Read More
Recently I watched my favorite football team lose a vital... Read More
If you have been dealing with mutual funds for any... Read More
Forget making a profit; instead focus on the income provided... Read More
Are you paying any attention to your retirement savings? Do... Read More
Let's hope you did not have any of the Enron... Read More
There are formulas for just about everything, but it has... Read More
The big bad bear is stirring again. So far he... Read More
There is so much involved in developing peak performance, that... Read More
With an insecure job market, overworked employees, insufficient retirement savings... Read More
Mutual funds and brokers are always preaching not to buy... Read More
Sidney felt sick as she looked at her latest OptionsXpress... Read More
Just about everything you have been told about Social Security... Read More
Regardless of the fact that the world's stock markets have... Read More
Mutual funds are doing more and more to discourage investors... Read More
It is difficult to make money in a bull market,... Read More
Investors who exclusively use broadly diversified, no load mutual funds... Read More
One of the big advertising kicks today from mutual funds... Read More
This article describes the model of a natural relationship between... Read More
People are always asking me when should I sell my... Read More
Caught in a whirlpool and being sucked under. No life... Read More
I read a comment by a forum member on another... Read More
If you have a pension plan at work you will... Read More
Spread trading is a technique that can be used to... Read More
According to Investopedia Inc. the penny stock market has seen... Read More
The fight continues to rage among traders who use technical... Read More
You have a lock on your house. You have a... Read More
A recent cartoon in my daily newspaper showed two guys... Read More
We've all heard of the stock market and probably have... Read More
Quick, look out the window. It's raining. No, the sun's... Read More
One of the basic laws of physics is that a... Read More
After finding the price of a particular stock, usually the... Read More
How many times have you said to yourself, "I'd like... Read More
Recently I was invited to appear on a live CNNfn... Read More
I often hear from people, "I don't trade. I invest.... Read More
One of the greatest challenges of investing in stocks is... Read More
The Law of Chaos is the theory of random unpredictable... Read More
Stocks & Mutual Fund |