Friday, May 28, 2010

S O S

It is difficult to draw any significant conclusions from the weaker action today. Some market players are obviously nervous about some negative news over the weekend. The downgrade of Spanish debt could easily weigh on European action Monday and give us a poor start when we reopen on Tuesday. On the other hand, we have a strong tendency toward positive new-week and new-month opens. If there isn't any particularly negative news in Europe, or the top kill works and the BP oil leak is plugged, we could see some strong gains to kick off the week.

I can see scenarios in either direction, but it's a coin flip. The technical patterns in the major indices are equally mixed. We obviously had a problem with the big technical level at 1,100 on the S&P500 today, but it was the first try, and we ended up with a lighter-volume pullback. It wouldn't be at all surprising to see the bulls make another run at a break higher next week.

While further upside may be an okay bet in the short term, the longer-term technical picture still looks quite poor to those "technical wizards" out there. We are still technically broken and in the midst of a correction. The action this week doesn't look like much more than a dead cat bounce, and it didn't do much to repair the damage we have suffered. The volume on Thursday tells us that buyers didn't have real conviction, and when you consider that we also had end-of-the-month mark-ups, the action is even less impressive.

Longer term, this market may not be out of the woods. While we could see more of a bounce next week, the action is quite different than what we saw during all those V-shaped bounces over the past year. With European problems at the forefront, negative summer seasonality kicking in and some major technical overhead, it is going to take some hard work to put this market back into an uptrend.

The good news is, for those so inclined, that this correction is giving us a new supply of trading opportunities.......