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Testing the Top

 
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arthur
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PostPosted: Sun Jul 17, 2005 10:29 am    Post subject: Testing the Top Reply with quote

SPX (S&P 500) rallied and hit a new four-year high, at 1,233, on better than expected economic and earnings news, along with a fall in oil prices, recently. Consequently, the stock market ramped-up its expectations of economic and earnings reports, which make disappointments more likely, if those expectations are not met. Therefore, I tend to believe, SPX will either be in a trading range or fall much lower next week.

The SPX daily chart below shows a bearish doji Fri. Also, the Stochastics (Full STO, i.e. bottom indicator) gave a short-term sell signal, when the three-day MA crossed below the five-day MA when above 80. The 20 day MA, currently at 1,208, may be a key support level, since SPX held that level over the recent rally. Also, when SPX closed below the 20 day MA recently, it generally became resistance. So, I tend to believe, SPX will trade between the recent high and the 20 day MA next week.

Other indicators show SPX may fall even lower, perhaps to around 1,200 (congestion areas), sometime in the second half of Jul. TICK gave a sell signal Thu, the NYSE and Nasdaq Oscillator's 20 day MAs are in downtrends, the Nasdaq short-term TRIN MAs are very low (indicating at least one big down day soon), VIX and VXN (voltility indices) are at multi-year or all-time lows, and the SPX to VIX ratio is at an all-time high.

Economic and earnings reports should continue to move the market, and oil prices continue to be a "wild card." Economic reports next week are: Mon: None, Tue: Building Permits, and Housing Starts, Wed: None, Thu: Leading Indicators, Unemployment Claims, Philadelphia Fed (regional manufacturing activity), and FOMC Minutes, and Fri: None. Next week is a light economic data week, and the reports Thu should be big market movers.

Greenspan will give his semi-annual testimony of the economy to Congress Wed and Thu. The housing market remains strong, and the Fed would like to see long-term interest rates rise, to slow the housing boom (although, the Fed directly controls only short-term rates). Also, the weekly oil inventory report will be announced Wed at 10:30 AM ET.

Earnings reports pick-up next week. Notable earnings include:

Mon: MMM C BAC IBM

Tue: INTC JNJ AMGN YHOO WFC F KFT JNPR MER LU TZOO SEPR MYL MOT MAN CAKE.

Wed: MO HON GM EBAY JPM BK WM PFE WYE EK ET QCOM QLGC STJ T VRSN.

Thu: MSFT MCD LLY MRK SGP KO CAT UNP GOOG NOK IR SNDK BRCM PMCS EMC SFA CLS JBLU DAL HSY NYT ODP.

Fri: HAL SLB OXY.

There may be one or two excellent opportunities to make huge gains with Aug options on earnings next week, i.e. risk little to make lots or lose little from differences between perceived and actual earnings. GOOG closed above 300, and option premiums are projecting a 15% (or 45 point) move after earnings. Consequently, there may be excellent opportunities to make gains before and after GOOG's earnings Thu (also, YHOO reports earnings Tue). For other and more detailed information, see Top Stock Picks section.

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