Green, Gold and Obama Set to Take the Field Tonight
The market blasted higher yesterday and the bulls recovered a lot of lost ground. The volume yesterday wasn't all that strong, but the bulls were able to overcome resistance zones. SPX blasted 3% higher, which put it way past 1175 and took the index all the way up to 1197 resistance.
Now that 1175 has been reclaimed that area needs to be support. I didn't like that SPX went below the 1175 level on Tuesday, but it recovered fast enough to give the bulls a second chance at 1250.
I still don't think the bulls have what it takes to bring SPX above 1250 for any sustained period of time. As a result, we'll use the same strategy as last week; go short above 1220 and keep all stops on long trades very tight once SPX breaks 1197.
In order to bring SPX above 1250 the bulls will need help. Thus far, economic news has been better than expected this week. But at the same time, economic data hasn't been impressive. And the bulls will need outstanding economic results for them to take SPX through resistance.
Since economic data is unlikely to fuel a rally up to, and then beyond, 1250 the bulls are left with two other chances. The ECB could provide the bulls with some juice if Trichet uses language today that would signal a rate cut.
The ECB has gotten firm on rates this year, but with the deterioration in parts of Europe and with inflation under control, the Central Bank may decide to cut rates this year. A rate cut in Europe would jolt the European indices, notably the banks, and that buying pressure would help the U.S. bank stocks and our indices as well.
The financials are down 14% in the last three months and 21% in the past six months - so they need all the help they can get.
The other way the bulls could gather enough energy to take the market back above 1250 would be from Obama. Tonight, and during football, Obama will take over the airwaves and deliver his $300 billion jobs creation initiative.
Obviously, some of the plan has already been leaked, but the specifics remain unknown.
Ten years ago, $300 billion would sound like a huge deal, but U.S. tax payers have dished out twice that much to banks in the past year. Amount aside, the market will like the $300 billion if directed properly. And the Obama plan could be what takes SPX back over 1250.
I don't expect too much from the market today. As mentioned to TradeMaster members yesterday around noon, I expected consolidation for the remainder of the day and today. The indices moved slightly higher yesterday afternoon, but could easily fall back a percent today.
The Asian indices were only slightly higher today, and Europe is flat too. I'd expect 1197 resistance will hold SPX back today, and investors will have to wait until tomorrow for the reaction to the Obama plan.
Traders will need to keep a wary eye on gold today. I know I am. Last week I went short gold. And after gold slumped 4% yesterday, I added to my portfolio position.
Gold rebounded 2% today, and I might have to cover about half that trade. Gold is in a clear upward trend, and I know not to mess with the gold bugs; who will buy gold at any price, anywhere, anytime.
