DJIM 20, 2009

Once again, we’re at crossroads where traders/ investors are wondering where this market will be a month or two from today.  Yes, we are about to enter the summer trading season and Q1 earning reports are at an end.   The question right now,  is whether we continue to trade this market on the long side or stay on the sideline to forego the uncertainty.  As far as Friday’s trade, it was more of the same technical driven trade we talked leading into the opening bell.  SPX895/  900 to the upside and a close on 20MA. Market pushed to 895-900 before sellers surfaced once again and a lack of institutional buyside prevented a push higher.

The uncertainty we’re referring to is the possibility of this market going to a much lower level.  At this point, without a major negative catalyst or two, we are finding it hard to imagine a market move to a much lower level (below SPX 820 or so).   If this is our mindset, a logical conclusion is that the current pullback ( 5-6% SPX) and next should be favoured toward the buyside.   In all honesty, this market has already defied many strategists' expectation on the path it has taken these last few months.  A stall in the current run-up does not necessarily mean that we go straight down and give up lots of the gains. We do, however, have to be prepared that the market can give up a portion of the gain so the market can be in a healthier state for action down the road.

When the action is going straight up, we have been increasingly hesitant to chase stuff we know isn't capable of sustaining such a pace.   However, the recent market action does give us plenty of ideas what and where to trade this market.   We had a number of earnings play that were well greeted by this market. Having a strong report is merely a start.   Getting a strong reaction off a good report is what matters the most.   We were fortunate enough to see some familiar and some new plays coming to our attention during this earning season.   Sure, there's always the fast play here and there, but the earning plays have always been the bread and butter type for DJIM trading.  As long as the trading action and technical signs stay healthy for the plays on our list,  we are willing to buy into the pullback bits at a time.   Given the rosy reaction, we have to expect that traders/ investors are willing to see these stocks' trend continue into next quarter and beyond, by bidding them up, slowly but surely.   Some plays will undoubtedly fall off the radar, but others will stay.

The coming week is relatively quiet for Eco’ data, but we do have a JPM tech conference kicking off Monday and a few household names reporting to give clues as to April business.   Right now, Tech and Financials are literally in a quiet period waiting for a catalyst.  Potentially, tech can wake up from conference and Banks- Brokers from a determination to repay TARP.

Technically, the next support is around SPX 873 and the major one is around SPX 835. The current resistance is around 895-900 and 929 as the next major one.  We could spend lots of time in between any of those levels which will create many trading opp‘s.  Unlike the uncertain period a few months ago, this time around, we know exactly what to trade.