4
richard
I hope everyone is having an excellent weekend! Everything looks to be moving along just fine in the markets, so I have no new technical forecasts for you. If we take a look at a daily 4 month chart of the S&P 500 I think it’s fair to say that the inverted head and shoulders pattern has been confirmed. In hindsight, this pattern did infact trigger at 1360 making it much more probable for the markets to break the key 1400 resistance. After breaking the neckline, traders started to panic to cover their short positions. Pressure was put on the short sellers once again as the S&P broke 1400. Now in the daily time frame, the bulls have the upperhand. With Microsoft abandoning the Yahoo bid over the weekend we may see a pullback on Monday. A negative day would be a healthy one for the markets as long as we don`t close below 1400. A pullback would be an opportunity to go long as we prepare to test the MA(200) at 1440.
Technically there is nothing more to report. If we get a pullback, which we might not because the futures are still showing strength, I will post a watchlist of stocks ready to breakout. To generate some much needed discussion on this site, I will likely post it as a comment under this article. Please do the same if you have stocks you like and feel strongly about.
Things are looking bullish right now, but there are still many unanswered questions as we head into the summer. These questions are ones to think about as we approach the 200 day moving average.
How much impact will the U.S. rebate checks have? Answer: I think people are more inclined to pay off their debts than go on a shopping spree…why celebrate when everyone is talking about a “recession”.
So are we in a recession? Answer: Many people are under the impression that we have bottomed and this is simply a slowdown. As mentioned in my previous posts, I am expecting a long leg down, so yes, we are in a recession and I think this recession will be longer than expected. This market is still overvalued and needs to correct.
But jobs and other economic data aren`t as bad as we expected. Answer to comment: A prolonged bear market and weakness in the job market is likely. Our latest job and economic data is simply lagging as usual. Maybe someone can answer this question for me…did the unemployment rate for April take into account that graduates just joined the work force? Would this skew the number upward hence the “unexcepted” smaller decline?
What will happen in the summer? Will the Fed continue to cut interest rates? Answer: Hopefully not, cutting interest rates will simply make inflation worse. The Fed will most likely raise rates again during the summer. This is when the next leg down will be…with it, more loan defaults may flood the market. When this happens, Wallstreet will have to do much more to forget we are still in a correction period.
So again, here`s my strategy for the week…if we close below 1400 I will short the markets, if we get a pullback I will buy if opportunities arise. I`m sure many of you may have other opinions in regards to the questions listed above, if so please comment and share your thoughts below 
Richard
richard[at]hedgeagainstspeculation.com
May 4th, 2008 at 9:41 pm
You really grabbed my attention
May 5th, 2008 at 1:08 am
[…] Hedge Against Speculation: “So again, here`s my strategy for the week…if we close below 1400 I will short the markets, if we get a pullback I will buy if opportunities arise. “ […]
May 5th, 2008 at 9:34 am
The markets basically ’send and e-mail’ to all market participants and stated that they will pull-back over the next few weeks/months and probably beyond. Friday’s action probably marked the end of the ‘First Leg Up’ of this bear market and this week could set up the ‘Second Leg Down’. Last week’s trading action was a strong confirmation of this bear market…bull party is over…next stop…slaughterhouse…
May 5th, 2008 at 12:53 pm
A couple stocks that came up in one of my searches:
PSP, ORLY, LNC, CHH, MNI, GMRX, TLM, PTEN, XRTX
All are in up trends, or are starting up trends. Some are about to break out, others did at the end of last week, and some need to consolidate a little before they give an entry signal.
May 5th, 2008 at 1:47 pm
Dylan thanks for your watchlist
Apollo, the First Leg Up is probably ending soon…and you’re probably right, the Second Leg Down is likely to be soon, but how soon? I think we still have a bit of time before we get fully bearish again.
I bought CEL on the breakout this morning. It is trading at its highs. We’ll see how this develops as the day progresses.
May 5th, 2008 at 5:51 pm
Took a small hit on JASO, but on a second look, its forming a head and shoulders reversal pattern with about 4-5 dollars to the downside
May 5th, 2008 at 9:44 pm
Richard, you are right…we are not ‘fully bearish yet’ but the ‘Second Leg Down’ may have already started…upside potential is almost non-existent (that does not mean that there are no equities for short-term long positions). I am pretty confident that the ‘First Leg Up’ ended Friday (sure we may see another small pop higher but I would not expect any drastic move higher if any at all). Either way…the markets are a great place to be in…as always.
May 6th, 2008 at 2:10 am
lol, ya, I got out of some long positions. I think I’m going to stay long in the markets until we break below 1400, I’m going to wait for some confirmation before making a complete u-turn. QID looks like a steal at this price though…
May 21st, 2008 at 10:03 pm
[…] about the markets but here it is. The past week has been a bit uneventful, after triggering on the head and shoulders pattern I was expecting the S&P500 to test the 200 day moving average right away. Instead, it took a […]
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