Sunday Market Thoughts

It’s hard to feel good about the equities market headed into Monday after Ben’s confidence spanking late in the afternoon on Friday. Where are we going from here? No QE3…? Is it possible that we’ll actually have to value the market for what it is instead of being artificially propped up by the printing press? It looks that way and that makes investors nervous. I won’t begin to try and predict the direction from here, but uncertainty rules the short term direction and right now, if not right out troubled. That, on the surface, points to a lower push in the near term.

However, there is a lot of economic data out this week, especially pertaining to the consumer, that could show some hidden strength.  On the other hand, if the consumer doesn’t look good (consumer spending is 70% of GDP), then I would expect the markets to push to new lows with high volatility baked in. We have not seen large panic selling to this point, but it feels like we’re on the edge and it’s as if though we’re just waiting for the right catalyst to show a major sell-off. For now, however, the options market shows there are still some traders betting long and until the VIX shoots back up above 23.5, we’re not really in an ‘unload the longs’ environment. Right now, we’re torn. The market is nervous, but the value trader is still picking up what they think are bargains.

Consumer numbers this week (from MarketWatch)

The reason I show the chart above is that these numbers suck… and without a consumer that feels better about the job situation, they won’t spend. If they don’t spend the economy doesn’t recover.  Unfortunately, we’re a country dependent on consumers to spend beyond their means.  If they don’t, we would be a much smaller, economically, country.  Right now, what’s the incentive to spend on anything beyond necessities?  Confidence is everything – even if artificial or unfounded.

SPX is in a down-trending pitchfork channel with price currently at the mid level and sma200. The next direction is hard to predict, but I’m looking for moves OUT of the top of the channel or below the mid-range. If we fall below, then we’ll watch sma200, then March 16 lows.  Below that is a lot of open air and might bring in the panic sell.. we’ll have to watch.  On the up side, we need to get out of the channel and, ideally, move above April 18 lows.  Above 1300 might bring in some confidence.

Headed into the week, I’m treating it as a big unknown.  We failed to break through key resistance levels last week and now eyes are on support levels.  It’s time to keep swing positions small (if any) and be selective intraday.  There will be plays out there and we’ll do our best to find them in the Boom Factory.  Just remember to not fall in love with ANY stocks. Sell the pops, honor your stops.  Until the market moves out of this consolidation range just above sma200 (on SPX), it won’t do any of us any good to trade too heavy.  Lots-O-Cash is a good position overnight until proven otherwise.