Saturday, February 4, 2012

Trading Thoughts for Week of Feb 6

Risk rally is going full steam ahead. I understand the underpinning behind it. I am not blind and I can see that stronger economic recovery is underway. This said, I continue to think that rally has gone too far too fast, and there are some rough seas ahead. There are still many obstacles which have not been resolved. And even if they were, market has an undeniable tendency to fool most people most of the time. It will start punishing late longs right after it stops out the last stubborn short. Based on this notion I would like to provide my near-term prediction for various assets which I trade.

(click on charts to enlarge them)

1. My outlook for stock market remains the same as last week - S&P 500 is overbought and will pull back. Short-term high around 1350 - 1355 will be reached sometime this coming week, the reversal will probably occur on Monday Feb 6 or Tuesday Feb 7. SPX rally is going to exhaust above upper daily bollinger band and will begin a multi-week decline to confluence support zone, consisting of: 50 dsma, lower daily bollinger band, trendline from Oct low, and horizontals @ 1293 and 1268.

2. Dollar will rally and make a run at highs (while equities decline), Euro will retest the low at 1.2625 and could breach it.

3. Copper will follow equities lower, even though it looks like rally is unstoppable. We surely have seen this before...

4. Gold is tricky (when is it not?)... I think it may start building a right shoulder of inverted H+S. If uptrend channel breaks, pullback will start, but will be limited by multiple supports: 150/100/50/200 dsma, backtest of broken trendline, and horizontals @ 1705, 1667, and 1644.

5. Oil is in a 93 - 103 range and will oscillate depending on Iran and equities.

6. Gasoline has disconnected from oil and is in its own world. Refinery problems will keep it up, even as demand has been very weak. I still think we will see $4 a gallon (retail) by Memorial Day.

7. Treasuries may cool off for a bit. What? Treasuries and equities down together? No QE3 = no "Tepper Trade".

8. DAX is going to pull back to 6200 - 6450 zone. It is up stunning 15% YTD. Trees do not grow to the sky. This would correspond with my SPX pullback expectation.

9. GOOG is going to run into overhead resistance just above 600 and will decline to low 500s.

I wish everyone a competitive Super Bowl weekend!

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