This past week of trading was an earnings fueled rally that brought many stocks and indices right up to their resistance points. AAPL and GE both rallied the market with solid earnings and both had significant pullbacks with GE finishing lower on the day. Monday is a huge day of earnings with many regional banks, lots of China plays and technology being well represented. How will this week perform and what will drive the trading?
2) The most important driver will be the FOMC two day meeting that culminates on Wednesday with the standard 2:15 pm annoucement. With QE2 set to expire in June, these meeting take on greater significance as to the wording in each statement. Anything other than a QE3 announcement will feel like tightening and that could roil the markets. The Fed must convince traders that inflation is well under control despite rising commodity prices and there is no need to tame inflation with higher prices.
3) Technically speaking we are at the upper end of the range on all major indices and on many stocks. The Spooz have yet to make a higher move stopping at 1337.75 on Thursday which is exactly te year high, then retreating quickly from that level closing 6 handles lower. The NAZDAQ showed the same action.
4) This trading week is the last week of the month which always seems to provide some added volatility as traders try to guess how money managers want to allocate for the new month.
5) My last driver of the week is based on two points, first the markets have long memories and it is exactly 12 months ago that the S&P was at multi year highs, all seemed right with earnings and yet we had 10 weeks of visciously down markets, leading me to the second point and that is the old adage of “sell in May and go away”. This is a fact based adage as the markets have returned more than 100% of its returns from October to April, and the May through September time frame has actually produced negative returns. Oh and by the way, the “Flash Crash” happened last May.
Seems to me like a lot of headwinds for the week of trading, but I would prefer to have no opinion and just play off my support and resistance levels. The right strategies have been to keep trading tight, take profits quick and cut losses quicker and I believe until we see how this weeks plays out that will continue to work best.
Happy Trading and watch me trade everyday on THE DAYTRADEWELL CHANNEL