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Weekly Stock Market Outlook for 10-12-2009

|Includes: DXD, FAS, FAZ, SPDR S&P 500 Trust ETF (SPY), SPY, SSO

Looking into the next week we can count on two things: buyers should be remaining in power and a probable run up to the 50% retracement level on the S&P 500. This price point is roughly 1,125. I think that if there is going to be a week for a big breakout, this week is as good as any for it to happen. If we continue to push up to highs, this is where we should all keep our eyes on. Let’s look at the chart.

WeeklyChart for 10-12-09

The MACD and RSI are both super strong. CCI is back to get above 100 into squeeze mode (where shorts will likely cover at higher prices). If we penetrate the 1,080 level I would hold long positions until we hit the 50% retracement level. Technical traders are going to want to bring it up to this level before thinking about shorting again.

If you look at every major bull market and bear market, there is a highly significant relationship between them, and a 50% retracement in the opposite direction from the runs top and bottom points. Our point is 1,125 and that is my target. The market may not necessarily touch this 50% retracement mark on the dot, but I think we are not close enough to it yet to say we have hit this retracement level. In other words, if we hit 1,115 then reverse and go south, don’t call me a liar! (Hah!)

I think we are approaching the possibility for a bear market again as fundamentals in the economy are not improving; they are sustaining their negative levels of activity which, at some point, should weigh negatively on stock prices. Right now it is fine for investors are glad the end of the world did not occur. Sooner than later, investors will be sad, or even mad, that we are not improving upon these bad levels. A stock market rally does not equate to jobs and it won’t take long for people to realize this.

Unemployment is still increasing and there is no signs of it stopping. Keep your eyes out for fundamental changes in government policy. I think that if they finally let the markets take back over, the 50% retracement will continue upwards and a true bull market will have started. If not, I think this is just a technical bounce to the 1125 level fueled by programmed trading systems, technical guru’s, and momentum traders.

Just my thoughts so take them as you like! Good luck and happy trading!