Commodities Poised for Snap-back Rally
The market activity was fairly tame last week. Volume was decent,
but price movement was nonexistent. In fact, SPX stayed perfectly within
its break out borders of 1355 and 1332. But this week should be
different.
I think SPX will break past its near term trading zone this week,
or at least I hope it will. It’s no fun to day trade such tiny price
movements, especially ones that completely reverse the previous day’s
direction. On a break out past 1355 the first target is 1377. To the
downside, a move below 1332 support takes SPX down to 1301.
Over the past two weeks commodities have fallen rather sharply.
Despite that amazing downward move, the stock market has been impervious
to near term selling pressure. The relative strength exhibited by the
indices augers for higher highs.
At some point, likely very soon, commodities will rally. That rally
may only be in mercy to the sharp decline from earlier this month; but
commodities will likely rally nonetheless. Said turnaround would likely
provide the juice the indices need to get them over the April hump and
onto higher highs.
But here’s the catch; well catches.
If the rally in commodities is short lived, which
I think it will be, the indices will likely be printing some kind of top.
I do not think the indices have the strength to survive another onslaught
in the energy and material sectors. Volatility would pick up
tremendously. And trading would be reduced to targeting short term
swings.
The silver lining of course is that if commodities do fall lower
there will be less pressure to tighten monetary policy. Less austerity
and monetary tightening bode well for a longer term bull market.
But there is always the chance that I am wrong, and commodities
rally right back up to previous highs – maybe eclipse them. The indices
would likely rally alongside commodities albeit at a much slower rate.
But the rise (again) for commodities would result in supreme inflation
fears. And in that situation monetary tightening, austerity and
instability would ensue – none of which are conducive to a bull
market.
The weekend video is up and posted to the website
here. I quickly went through the
indices and in a second video went through stock setups. Stock setups
this week highlight bearish and bullish trades since it appears likely we
are headed for a trend shift. Lastly, in a third video, I re-cover the
Top
Ten Trades for May, and provide updates. With clear break downs of
support, some of those trades look like great stocks to short, especially
POWL. And if you find it absurd that I can be extremely bullish on a
stock one day, and two weeks later think it’s poised to decline 15%; then
you need to stop trading.
