Friday, July 10, 2009

Another Week of Losses

Back in June it appeared that the market was set for a breakout above the 200EMA just above 940. Now it looks like the SP500 could break down towards at least 830 from a close just below 880 today. What a crazy market it is these days.

Whether from fear that Obama is going to destroy the economy from his relentless focus on every subject other then the economy.... healthcare, cap and trade to name a few. To news that investor fear and consumer sentiment have reached levels not seen since March. Really surprising that they fell below April and May levels.

What happened to the recovery? If not for the market drop, the US would surely be setup for a strong recovery in the 2nd Half. Just about all of the economic data has reversed course to the point of potentially ending the recession with the July data. Now though we have to deal with a President gone of course and a market about to break. Will Obama wake up and realize we need a strong economy for his initiatives. At least 60% of Americans are already against a 2nd stimulus and most economists dislike such a plan. Why did Obama officials bring it up?

Stone Fox added some defensive positions like shorting Simon Properties (SPG) or buying the SH and SRS inverse ETFs. Nothing very aggressive at this point because the market might just rally with earnings next week. Earnings that are likely to be better then expected considering the negativity. After all, the jobs cuts of June will likely lead to higher corporate profits. The market is also very oversold at this point and the bearishness is at levels that normally trigger rallies. Not many professional traders expect a rally and in fact most suggest going short but yet the market has not broken through support in the 874 - 880 level. In fact the sentiment data should've sent a negative market sitting at a big technical point over the edge, but it didn't. Its very possible that the shorts have nothing left. They've all been bearish for a long time. Not many people on the bull side to shake out and this move should be enough.

Regardless, we'll watch the market next week for our next move. Predicting where the market will go seems worthless. Trade the market you have and not the market you want.

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