Stock Market Outlook - 02.10.12

[OptionTradingIQ]

What had been a
relatively quiet week, all of a sudden turned a little ugly today (about time I
might add!!). It seems every man and his dog was bullish leading in to this week
after the phenomenal jobs report last Friday, so a nice dose of reality might be
just what the doctor ordered. As of this writing, the RUT has given back all of
the gains from the big gap up and is looking slightly more bearish, at least in
the short term. However, volume has been quite light today and I think any
pullback will be short-lived.

Next week, I’m expecting to see a little more red early in the
week, the extent of that selling should give us an indication of whether this
selloff is for real or not. I’m expecting it to be short-live but keep an eye on
volume. Now to the charts…..

Below is the SPX daily chart, you can clearly see the profit takers
making a stand at the 1350 level which was a key resistance point and a major
psychological level. The index had been overbought on the stochastic indicator
since late December and we’re now seeing a MACD cross with a little bit of
divergence. The first level of support is around 1325-1330 and then it’s down to
1300 and the rising 50d moving average below that around 1290. Time will tell
how far we drop, I think 1300 will hold though if we hit that. The 50d EMA is
above the 200d and both are still rising which is
bullish.

RUT is looking very similar, it closed last Friday’s
gap today and there is some support here at 813. The next support level is 800
and then the is VERY strong support at 775 which I would expect to hold if

we test it. Stochastics and
MACD are both rolling over but the 50d EMA is above the 200d and both are still
rising which is bullish.

The VIX is on the rise again today after finding very
strong support at 16. It’s now around 22 and if we hit 23-24 next week that will
be a good time to start getting short volatility.

Copper is down big today, much more than the indexes.
As a leading indicator that is not a good sign for the broader market. It hit
resistance perfectly at $50 and there was even some nice divergence on
stochastics and MACD, a nice trade opportunity if anyone spotted it.
unfortunately, I did not until just now. JJC is above a rising 50d EMA and 200d,
but the 50 is below the 200 so this is less bullish than the stock indexes.
Whether support holds at $48, which is also the 200d EMA could be crucial to the
outlook for the overall market, so watch this one closely. You’ve been
warned!

XLF is holding up ok today and looking somewhat
similar to the broader indexes. Another almost perfect hit on the resistance
line here (honestly, why didn’t I sell some bear call spreads this week….. seems
so obvious in hindsight), and a test of support at $14 look inevitable.
Stochastics and MACD are rolling over, but the 50d EMA and the 200d EMA are
rising and the 50 is about to cross the 200 which is
bullish.

Below is the economic calendar for next week, Retail
Sales on Tuesday, Fed minutes on Wednesday and CPI on Friday could be market
moving. Thursday is also a big data day with Housing Starts, Jobless Claims, PPI
and Philly Fed Survey on the agenda.

Have a fantastic weekend, and stay
safe. We are having a nice quiet weekend in Cayman, possibly taking the kids to
the Turtle Farm tomorrow morning which should be
fun.

Until next week, here’s to your ultimate
success!
Gav.

 

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