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Stocks Still Biased to the Upside

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

Weekly Stock Market Outlook for 12-7-2009

Recently we have seen a lot of resilience in the market and its refusal to turn around. Some people think we are long overdue for a correction, however there is a whole other group of traders and investors who think that the sellers who wanted out, have done so already. If the latter is true, we could definitely see the market, not only make new highs on the year as it did last week, but close at or above them. A pop up does the bulls no good if it doesn’t close at those levels but we will have to see what happens as the trading week transpires.

Technical Forecasting of the S&P 500 Index

 Stocks Still Biased to the Upside

Looking at the daily chart of the S&P 500 Index (SPX) we can see the predominant trend is still up. That being said, we have to be cautious about this trend as the last signal the CCI has given us is a sell signal. It currently is at 52 and a little sell of could trigger shorts in and longs out as this signal sometimes is right many days later. Just recently there was fears of a blown up debt crisis in Dubai so we need to be aware there could be some more diamonds (for bears) in the rough out there. Keep your stops and hedge your bets as we continue upwards. I see no reason why we couldn’t hit 1,150 next week and maybe break up over 1,160 as a result of shorts stopping out.

I think shorts are positioning for another pop up. Last week I noticed Intel (NASDAQ:INTC) was hard to borrow. Meaning that there was so many shorts out there that it is hard to find stock to borrow to short anymore. Today I look and I see it is easy to borrow again. This could be a sign that the “smart” shorts see a pop coming. The thing I like for the bull’s case is that crappy stocks like AIG and C are no longer trading up with the market. When you see junk going up with other good stocks, it leads me to think the market is being inefficient and priced too high. They no longer are trading with the market as shorts eat the junk up so the bulls may now finally have a base to build on. This is just my thoughts and observations as of now so who knows where we will go. Markets do not have to behave rationally!

If you are looking to get long/short (very directional) in this market I’d wait for a break out of the rectangle I constructed on the chart. If it closes out of the box, you can probably expect that trend to continue whichever way it popped. Until then, covered calls and other hedged time decay strategies could be very profitable!

Good luck and happy trading!

Disclosure: I hold no positions.

Disclosure: No Positions