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Monday's Market Outlook 5/3/2010

Bottom Line: The boundaries within a trading range have been set. A rally attempt in here that fails to make a recovery high should be viewed as a chance to sell.

It’s pretty clear cut. A break below last week’s low in the ES (E-mini’s) in our opinion can be labeled a small degree Wave 3 and lower prices will be seen. Targets once confirmed (below $1176) are $1147, then $1114. A break above the prior top (near $1216) says to us that the counter-trend rally that began in March of 2009 has more to go.

The signs of cracks and “hooks” are increasing. It’s not even subtle anymore. Too many names that were once good are either failing to extend or falling out of bed. When the good start to falter, it’s time to take notice.

There’s still quite a bit of headline risk that the short is dealing with. The wall of worry is back, this time in full force. All the talk either about GS, Greece and the oil spill will prompt the short seller to lose faith and focus. Once these headlines slow, the complacency will rebuild and the topping process should resume. We still feel strongly that this move up ends on a whimper and not a bang.

The China growth names still standout as candidates to short. PWRD and NTES are two we like and will alert you once we step up and take advantage, especially if there’s early strength. This list will grow once we either break support and confirm a Wave 3 down or, once we bounce back and take shape that this “last” move is about to exhaust.

We remain bullish on the Dollar and Bonds, bearish on Crude. It makes sense to us that this stance is a reflection of an upcoming flight to quality move as the equity markets weaken.