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Uncertainty Persists

The Bears have Legs, really, and if you're not prepared to deal with selling pressures, then moving to cash is the most prudent action.

Put option volume has increased significantly over the last few weeks and is still up on concerns that the EU debt issue along with US economics and pending banking regulations will have a negative impact on values.  This is a correction that could have momentum to turn back into a Bear market, but fundamentals need to warrant a Bear market move. 

Currently, macroeconomic data has seen improving baselines.  There are concerns and uncertainty that remain in Labor, Banking and Housing. 

 

Put Option volume is significant and Call volume has all but disappeared.

Previous Options support levels were broken this week and the downtrend was not insignificant.  Selling pressure remains, and some suggest oversold for contrarians, but don't go on a buying spree.  New Support levels for the QQQQ's is at 42 and the SPY at 105.  Mark these levels, because if they're broken not only will the Bears have legs they'll sprout wings.

On the upside, there are no resistance levels to consider, we'll need support levels to hold.

 

"The Bears have Legs".  Things to consider on the larger scale, include the 775 banks on the trouble list with 72 having failed already this year - more are expected to close this year than last year. 

While unemployment seems to be improving, as per Obama and crew, the bottom line is uncertain.  Yes, Corporate America is in a hiring mode, but Small Business America is not.  Unemployment is at 9.9% with 10 States seeing increased unemployment data, although 34 States have seen a downtick in unemployment.

Wal-Mart beat expectation this last week but forward looking numbers disappointed suggesting that consumers may be pulling back on spending.

While here may be some buying opportunities presented, consider the significant downside and assuming that the EU issue worsens and the US can't find any good data then stick to bearish strategies. 

 

The Flag district:

 

1)      The EU – problematic, do not ignore this issue.

 

Looking at fixed events…

 

Last Week: 

1)      Housing Starts – lower than expected

2)      PPI – met expectation

3)      CPI – met expectation

4)      Initial Claims –higher than expected by 25K

Next Week Economic events: 

1)      Manufacturing data – durable goods and the Chicago PMI

2)      Existing home sales

3)      Consumer Confidence

4)      GDP

5)      Initial Claims

Points of Recovery:  plenty of weakness to go around. 

1)      Financials –  

2)      Housing –  

3)      Consumer Confidence –  

4)      Labor –

Other concerns:

1)      The dollar –

2)      Deficit/debt problem overseas…but here as well.

3)      Small Business – still no real improvement, increased BK.

Fundamentals:  points to concern, housing and labor.

Sentimental:   Put/call ratio week average is 1.25 – Bearish. 

VIX 40, bearish sentiment.

Technicals:    with lower lows and lower higher the markets are in a bearish mode, looking for support.  The 200-day EMA is holding as support, for moment.

Summary:  The bears continue to have legs, but may find a floor based on technical and sentimental over sold indicators – DO NOT CONSIDER THIS AN INDICATION TO BE  A BUYER.  Be protective if you haven't’ already consider Protective puts with stock positions.    Confidence is uncertain as of the end of week movement.   Sentiment, as per option volume and activity on the SPY and the Q’ suggests the Bears have legs, watch the 105 on the SPY and the 42 on the Q’s as a benchmark that if broken the downside can be accelerated.



Disclosure: no positions