...Fore!

So, when they were yelling, “Fore” at the US Open, they were actually yelling at all the traders watching the event to watch their heads in the market!

In consecutive weeks now,  we’ve sold off hard.   No, it wasn’t pretty out there!.  We got the test of SPX 200MA/900 psych. converging levels,  we had just noted we’d accept this test to see how strong these coinciding levels were.   Unfortunately, market failed, closed below this important level and the June gap breakout recently (also the 50MA today).   That‘s a lot of technical damage in a short span of time.   The market is currently ~7% off SPX 956, now,  we can say we are in the midst of the largest correction since we bottomed back in March.    The question everyone is asking today, ‘can this slide derail the bullish sentiment and trend we've set during the last few months?’    Absent of a major negative catalyst or two,  we feel it's unlikely the market participants will change their longer term bullish bias unless they become very spooked.    Today’s main culprit,  World Bank noise is essentially a continuation of what they said end of March, “bleak outlook in 2009”.   Also, just last week they raised “China’ outlook that is not included in today’s report.   We don’t have to tell you what the market has done since March.   The probability of the market digesting this properly is what we hope happens overnight and we get back above 200MA or else we have to proceed with extra caution accepting a further correction until we get a positive catalyst headline.     We’ve been running on fumes due to lack of positives and it’s toll has caused market to lose momo and become vulnerable at every recent support quite easily.    The underlying bid is not coming in as it did for a few months of this rally on cue. 

We simply view this correction/pullback as an opportunity to build shares as it‘s still suggesting a profit taking correction and not shorts pressing yet (caution is that it could occur if they are given a bad headline).   We are about a dozen points away from the May low of SPX 880 and there's some pretty strong support around that level.   Barring a real neg catayst,  we find it hard to believe that market would go straight below SPX 880 in the near term. 

If we get closer to SPX 880,  we feel this is the area we have to be more aggressive in buying,  Why?   We haven't started the next round of earnings yet and this upside risk remains for the Bears.   We have not heard any warnings of any major magnitude from anyone.   The economic data has been generally positive last few weeks.    The negative news we've been hearing lately have been nothing,  but recycled stuff mostly.   The threat of inflation via. commodity price has also eased quite a bit and profit taking in this high beta group got ugly today.   Back on June 3rd in Alerts , we said ’short’ the Shippers , if you can get shares and their fall has been a prelude to the rest of the sector.   The correlation of shippers to the rest of the commod groups is quite obvious to any trader,  so its not surprising the Shippers started the way to this necessary bear market correction in commods.  GNK has fallen ~30%,  DRYS 35%, EXM 55% TBSI  ~60%.  We continue to only like the steel grp as something to trade in the commod space when the $USD allows.     

Basically,  nothing material (only technical) has happened recently which supports a major move down.    Given the kind of movement we've had since March,  a correction down to the mid SPX 800s is still within reasonable range this summer.     Having said that,  we’d continue to be selective on choosing plays to buy into as we enter a new EPS season.    We remain to be weighted to the recent EPS winners as they represent the best opportunity going forward

Bottom line, today's history and we have to focus on tomorrow.    The potential move between SPX 893 to SPX 880 can be a big window of opportunity for us.   First thing though is we can’t give up on 200ma just yet ahead of FOMC, a few Eco’ points and Q end this week.