Expect Choppy Prices Ahead

Major indexes again attempted to breach significant resistance and failed on Friday.

As always, the chart tells the story:

In the chart above of the S&P 500, we see prices again stopping at the 877 resistance level and falling into a column of red Xs, a High Pole Warning, which indicates that the demand that was forcing prices higher is now leaving the market.

Rarely do you see a successful push higher after three failures, much less four, and so it appears that this bull market rally is running out of steam.

Unfortunately I missed this quick move up that began at the end of March that still looks very much like a bear market rally, and so strategy now is to try to find sectors with long term potential and supplement those positions with shorter term trading positions.

I believe that going long at this point would not be prudent based on the quick move upward, the seasonal factors based on statistical evidence of the "sell in May and go away," phenomenon and the declining momentum and volume of recent market action.

We will look for a retracement and then adjust current market conditions. If this bear market rally retrenches and then continues we will watch for a good point to join in. If it turns back down towards the March lows, we can use inverse ETFs to participate.

The View from 35,000 Feet

This week saw the bankruptcy of Chrysler along with what is becoming a Friday ritual, the closing of 3 more banks and another $1.4 billion bill for the FDIC.

Earnings are running at -35% from a year ago but "better" than expected, Chrysler's year over year sales were down -48%, GM's -33% and Ford's (F) -33%.

Warren Buffett, whose Berkshire Hathaway (BRK.A) is down -31% in the last 12 months, had his annual meeting in Omaha and said he sees no recovery in retail and stabilization in housing at "much lower prices." He also said the all of the candidates being considered to replace him as Chief Investment Officer "got creamed last year."

But consumer confidence was up for the quarter.

Here's how this bear market rally in "The Great Recession," compares to those of the Great Depression, courtesy of Chart of the Day:

Source: Chart of the Day

We are at the "You are Here" point on the graph and so you can see that we're still below average in time and gain as far as bear market rallies go.

Our goal from this point forward will be to try to take advantage of these rallies as they come along, because if this is going to be anything like The Great Depression or the experience in Japan, the current market environment could go on for years to come.

This week has some pivotal news coming after the close on May 7th, Thursday, when the "stress tests" on the country's 19 largest banks are released. To get an idea of the size of these guys, they hold 2/3 of the assets and 50% of the total loans in the United States.

Analysts say that up to 14 of these giants might need more capital, with Citi possilby needing up to $10 Billion more on top of the $45 Billion of our taxpayer money that they've gotten thus far.

And the biggie could be on Friday with the April Non Farm Payrolls Report

The Week Ahead:

Monday: March Pending Home Sales, March Construction Spending

Tuesday: April ISM Survey

Wednesday: ADP Employment Report

Thursday: Weekly Jobless Claims, 1Q Productivity

Friday: April Non Farm Payrolls, April Unemployment, March Wholesale Inventories

Sector Spotlight:

Weekly Leaders: Taiwan Index, Agriculture, Brazil

Weekly Laggards: Home Builders, Real Estate

We're in Portland for the weekend at a swim meet with my 16 year old and a birthday dinner for the Mom in a family whom we met on vacation on Maui a few years ago. The dreary Oregon spring rain is a far cry from the sunspeckled beaches where we first met.

It has been a long winter and late spring in many ways.

Wishing you a great week wherever you may be.

Disclosure: None

Comments

[Jasper M:]

LOVE that chart of the day; instructional. Thank you.
I had already been planning to have my financial shorts in place by Thursday.

May 05 03:50 AM