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Market Topped | Weekly Stock Market Outlook for 11-2-2009

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

 Stock Market Outlook

Well we nailed it last week again. This time we called a probable top and the market definitely liked what we said. That being said, tomorrow is a new week and we have a whole new outlook. Let's investigate what I am finding. First off, chart time:

Weekly Stock Chart

SPXWeeklyChart

Looking at the chart I want to note that the trend is definitely confirmed to have changed from bullish to bearish. However, it is important to respect that the MACD and RSI are still technically bullish. I am not saying I think the market will go up from here, I think the trend is down. However: watch for irrational upside behavior and short squeeze.

What does that mean for you? It is ok to be bearish just don't add too much size so you can keep wider stops. Volatility is back so you need to plan around it. Also, if there is an irrational upside squeeze, look to profit from it. Maybe not on the way up, but on the way down, as people panic sell buying stocks for illogical reasons at these levels. I would only buy stocks for 1-2 days hold in this market; lean more toward short side plays. Looking at stocks like AIG, I still see potential on the downside all over the place on CRAP companies.

Short Term Timing

The daily chart will help us time our entries short and long. I am going to try this week to keep giving you daily charts, but take note on how I analyze it if you have to fly solo for the day.

SPXDailyChart

I can sum of this chart's indicators with one word: Sell. CCI, MACD, RSI, and the trend are all saying to sell. If you are looking for a high probability trade to enter, and it is not short, I wouldn't want to take it, or with any size. Look for the markets to continue to roll over. Short term target of 990 and a possible longer term target of 930 on a healthy pullback. We ran up from 666 to 1,101 so we need to respect profit taking and a run up of a large propensity happening SO quick.

Also noted, VIX is up!

VIXweekly

I said to be careful on the short side until we see VIX close above 25. Well we got it plus some. We are at 30 so volatility is back and expected returns should increase, meaning risk premium will be priced into the market now (prices will fall to an appropriate risk:reward level). So going into next week, expect choppy irrational behavior, maybe a quiet euphoria if no downside occurs, and that the probable outcome will be a continuation of this new down trend.

Good luck and happy trading!

Disclosure: No Positions

Original Source: http://financialderivatives.net/?p=1234