Market Ramps: What Should You Buy Now
The market stabilized yesterday as the indices
finished flat after a rocky session. Volume was low again, which is par
for the course now that we are fully into the summer doldrums.
The stability in the market was more of a balancing act between the
financials and energy stocks. Yesterday the banks rallied hard again, but
energy stocks were murdered as oil dripped 3% in afternoon trade. Oil is
now back near its must hold support area, and would target $89/$90 on a
breakdown.
Yesterday I shut down all our bearish positions. Does this make me
bullish? Not at all. But as I mentioned in Monday morning's alert; the
bulls are at a must hold area of support and the near term favors buyers
considerably. Not only will 1250 be a difficult support zone to breach
and it has proven to be so for some time, the indices are extremely
oversold are long overdue for a rebound.
While it is an easy support area to spot, the 1250 price holds a
lot of meaning to traders. A breakdown through 1250 does two things.
First, it would take SPX through the March lows. The breakdown through
that swing low confirms what I already held to be true in February
(that
the bullish trend was over) and opens the door to a 7.5% move lower
this summer. Secondly, the 200 day moving average is 1254 and increasing.
So a breakdown through 1250 would pierce the moving average and also
confirm a bearish trend.
Certainly, there are dire implications if 1250 is broken, and it
eventually could be broken, but it's unlikely to happen this week - and
that is all we care about. I think the market is changing dynamics and
trade will be short term since the market is unlikely to develop a clear
trend.
The market is up against a strong (and must hold) area of support.
In the near term I would expect to see a rally, but the bulls will need
to do more than just hold their support. The indices have fallen through
a number of support levels on this six week decline. The bulls need to
stabilize the market within the next few days and start to take out areas
of resistance over the next two weeks - 1301 being most paramount. The
weekend video "Market
Review" goes over areas of support and resistance to watch in greater
detail.
Data overseas today showed expected inflation in China, although
productivity in China came in much stronger than expected. Reports also
showed a decrease to consumer prices in the U.K. but the consumer price
index stilled showed a 4.5% increase and a 3.5% increase in the core. And
inflation attacked all the fun stuff. Great Britain experienced a huge
increase to fuel and alcohol prices. The U.S. released producer prices
today, which will have a big impact on earnings down the road if
corporate America cannot pass higher costs down to consumers. But
earnings season is still another month away (and the PPI was barely
higher).
