S&P Technicals are Breaking Down
May 17, 2011 1:16 PM ET
MrMajestic's Blog
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We called a top in the market on May 2nd, 2011. But why were we calling a top? Earnings were beating estimates, guidance was fairly good, we reached new 52-weeks highs, so why are we going down?
Could it be the old adage "Sell in May and go away"? Probably a small contributing factor. Was it the impending anniversary of the "Flash Crash" that eroded retail investment confidence? Well, maybe not the anniversary, but the event is surely a contributing factor over the last year. How about volume in the markets? Last July 2010 the NYSE Volume Average was 1,255,567,000 Shares, which was a 52-week high average at that point. The end of last September 2010, the NYSE Volume Average was now down to 1,240,630,000. May 16th NYSE Volume Average is 1,037,129,000. While the market was going up, the NYSE Volume Average was going down. This is a very weak sign for an uptrend to sustain itself and technically an alarm to be weary of staying Long. Also, we had a very steep climb from April 20th, 2011 to May 2nd, 2011 and a large move away from the 50 Day Moving Average(MA). At that point, we know it will come back and hit the 50 Day MA before it can find support and again go higher. On May 17th, 2011, the S&P did hit the 50 Day MA and now looking for more support again.
In our May 16th, 2011 Newsletter we identified a Bullish Pennant pattern on the S&P with a Bearish bias. We recommended any break above to go Long, below to go Short. Because there had been greater Lower Highs in the Bullish Pennant, we were more Bearish and that’s what happened in the May 16th and 17th trading days.
So, where are we headed and what should you be looking to trade? If we close below 1,320, our next target range is 1,295 - 1,305. If we break 1,295, we have a much steeper drop to the 1,265 range.
For some safety picks we have recently provided the following Long Trading Ideas: $DF, $CAG, $VGR, $AET, $M, $EXR and $AGNC
Some Short Trading Ideas we recently provided: $JBHT, $XLF (although you can go Long with the $SKF), $SPY and $QQQ
This market will continue to be volatile in the upcoming months, especially headed into the summer time. Last summer June, July and August were extremely volatile and were very difficult to hold Long positions during that time. The mentally to make money over the next 3-6 months will be much more of a "Trader" than an "Investor". Swing Trading and Position Trading (holding for a few days and/or a few weeks) will yield greater profits if you are on the right side of the trades.
There are several economic and geo-political headwinds that we are dealing with and there is no clarity on how they will unwind and affect the markets. Most analysts are bearish, despite record corporate earnings. The end of Quantitative Easing Part 2 (QE2) in June has people feeling uneasy to the fallout. The incredible discussion of QE3 are making people angry because the US can only sustain so much debt before foreign nations no longer want to buy our debt and unload it. Multi-National companies are pushing for a tax holiday so they can bring back funds from foreign nations to reinvest in the US on R&D and expanding employment. These are major headwinds, not including a 9.0% Unemployment Rate, a poor housing market that has seen the average home price continually decrease, foreclosures rising every month and the latest discouraging statistic that 25% of home owners are “underwater” (meaning they owe more on their home than it’s worth). There is money to be made in the markets for those that seek smart opportunities and don’t get greedy with profits and manage their downside risk on trades. When all of the headwinds unwind, people with cash will be the ones that will take advantage of those opportunities. We have begun to identify them and put them on our watch list along with tracking sector strength.
We are advising our members to stay hedged, use Options effectively to protect portfolio's and look for very strong technical support on stocks in underperforming sectors. The market will get beaten up for a while, but there will be a lot of trade opportunities with great profit potential.
Buckle up, keep your eyes open and your stock watch list handy.
Authored by,
Ronald Lang
Senior Partner, Stock Technical Analyst
www.MajesticTrader.com
"Where Active Traders Seek Greater Profits"
Could it be the old adage "Sell in May and go away"? Probably a small contributing factor. Was it the impending anniversary of the "Flash Crash" that eroded retail investment confidence? Well, maybe not the anniversary, but the event is surely a contributing factor over the last year. How about volume in the markets? Last July 2010 the NYSE Volume Average was 1,255,567,000 Shares, which was a 52-week high average at that point. The end of last September 2010, the NYSE Volume Average was now down to 1,240,630,000. May 16th NYSE Volume Average is 1,037,129,000. While the market was going up, the NYSE Volume Average was going down. This is a very weak sign for an uptrend to sustain itself and technically an alarm to be weary of staying Long. Also, we had a very steep climb from April 20th, 2011 to May 2nd, 2011 and a large move away from the 50 Day Moving Average(MA). At that point, we know it will come back and hit the 50 Day MA before it can find support and again go higher. On May 17th, 2011, the S&P did hit the 50 Day MA and now looking for more support again.
In our May 16th, 2011 Newsletter we identified a Bullish Pennant pattern on the S&P with a Bearish bias. We recommended any break above to go Long, below to go Short. Because there had been greater Lower Highs in the Bullish Pennant, we were more Bearish and that’s what happened in the May 16th and 17th trading days.
So, where are we headed and what should you be looking to trade? If we close below 1,320, our next target range is 1,295 - 1,305. If we break 1,295, we have a much steeper drop to the 1,265 range.
For some safety picks we have recently provided the following Long Trading Ideas: $DF, $CAG, $VGR, $AET, $M, $EXR and $AGNC
Some Short Trading Ideas we recently provided: $JBHT, $XLF (although you can go Long with the $SKF), $SPY and $QQQ
This market will continue to be volatile in the upcoming months, especially headed into the summer time. Last summer June, July and August were extremely volatile and were very difficult to hold Long positions during that time. The mentally to make money over the next 3-6 months will be much more of a "Trader" than an "Investor". Swing Trading and Position Trading (holding for a few days and/or a few weeks) will yield greater profits if you are on the right side of the trades.
There are several economic and geo-political headwinds that we are dealing with and there is no clarity on how they will unwind and affect the markets. Most analysts are bearish, despite record corporate earnings. The end of Quantitative Easing Part 2 (QE2) in June has people feeling uneasy to the fallout. The incredible discussion of QE3 are making people angry because the US can only sustain so much debt before foreign nations no longer want to buy our debt and unload it. Multi-National companies are pushing for a tax holiday so they can bring back funds from foreign nations to reinvest in the US on R&D and expanding employment. These are major headwinds, not including a 9.0% Unemployment Rate, a poor housing market that has seen the average home price continually decrease, foreclosures rising every month and the latest discouraging statistic that 25% of home owners are “underwater” (meaning they owe more on their home than it’s worth). There is money to be made in the markets for those that seek smart opportunities and don’t get greedy with profits and manage their downside risk on trades. When all of the headwinds unwind, people with cash will be the ones that will take advantage of those opportunities. We have begun to identify them and put them on our watch list along with tracking sector strength.
We are advising our members to stay hedged, use Options effectively to protect portfolio's and look for very strong technical support on stocks in underperforming sectors. The market will get beaten up for a while, but there will be a lot of trade opportunities with great profit potential.
Buckle up, keep your eyes open and your stock watch list handy.
Authored by,
Ronald Lang
Senior Partner, Stock Technical Analyst
www.MajesticTrader.com
"Where Active Traders Seek Greater Profits"
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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