Dollar Poised To Rally
The
market tumbled out of the gate yesterday and
volume was elevated. Additionally, the rampant selling impacted nearly
all asset classes and sectors. Notable exceptions were the dollar and
precious metals which began the day with strong gains. But by the end of
the day, volume levels had slackened and most of the indices bounced off
the morning lows and closed near their opening prices.
Additionally, most of the indices maintained support zones
yesterday. Although a few of the major indices briefly went below
established support zones, which I highlight in the weekend video, the
afternoon rally allowed the bulls to reestablish the lost support without
challenge. For example, SPX fell below my 1301 support for 45 minutes to
1294, but it immediately recovered and closed at 1305 and above 1301
support.
Although no damage was inflicted by the bears in terms of breaking
support, the bears did show tremendous vigor to begin the day Monday
morning. Volume was very high and the selling pressure was intense. And
even though the indices close well off the lows, I am willing to
acknowledge yesterday was a distribution day.
As such, I recommend that you hedge your long positions, if
applicable, until the market records another accumulation day. I do not
expect a prolonged bearish trend to unfold, but the fact that we had a
distribution session near the start of earnings season leads me to
believe that the selling pressure witnessed yesterday morning will occur
again this month. The market is rattled and more sellers have emerged.
Thus, the market will be less forgiving should let’s say Apple (Nasdaq:
AAPL) or Intel (Nasdaq: INTC) miss first quarter estimates.
The banks are already sucking wind this quarter.
Bank of America (NYSE: BAC) Citi (NYSE: C) and most recently Bank of NY
(NYSE: BK) disappointed in both the top and bottom line results. The
market has responded negatively to most stocks from this lagging industry
and the banking sector is down 5% in the last week. In fact, the index is
dangerously close to losing March’s established support zone and runs a
large risk of declining another 8.5% from here.
The bears are becoming more active. The group has not proven
anything yet, other than their existence, which believe it or not, is a
development - sellers literally disappeared in the fourth quarter of
2010. But yesterday’s selling does not change my bullish bias one
iota.
Yesterday was the first distribution session during this most
recent pull back. Although it was unexpected, no support levels were
broken and the indices finished off the lows. The bears may setup a new
resistance level around 1318, which is why I recommend a set of new
hedges, but ultimately I expect the indices to recover from Monday’s
decline.
The market and resistance and support levels to observe was
reviewed in part one of the weekend video installment here. The video also goes into the dollar, which I
believe is setting up for a bull rally. In part two, I examined about 20
stock setups and that video can be found here. Some of the stocks are current holdings, but
most of the selections from the video are new. I recommend every
subscriber watch a portion of that video before they trade stocks this
week.
Send comments anytime editor@trademasterstocks.com
