Tuesday, July 14, 2009

XJO to follow the US

Following the stop devouring surge on Tuesday, the S&P continued to squeeze higher today. Looks like it should test the downtrend. On balance I favour shorting around there, but wouldn't be surprised to see a quick move through the trendline to clean the shorts out and start the process of a few longs being established at the wrong level (after all we need these to create some downside momentum when the market does finally crack lower).

We are at the front end of earnings season where the good news is plentiful. It is reassuring to know that the stankers at Goldmans have been able to slip a few crumbs in their pockets while helping out at the soup kitchen. And in after-hours, seems that Intel has impressed with its numbers. I'm not that close to it - but I take David Rosenberg's lead...expect core earnings to disappoint over the reporting season.

So, while it's not out of the realms of possibility that we could get a 6 week rally that would take us through 1000, I'm still plumping for the short side. On timing, I'm expecting that we will settle around 900 for the expiry. Then look for market to test lower next week. Question is whether to establish shorts sooner (because levels are attractive) or later (because likely to chew through some theta as the market gets positioned for the next big thing). I like Tim Knight's analysis on this...

For XJO - the Aussie market spent last week trying to pre-empt the US. The failed crap-out on Tuesday put an end to this (and must have hurt quite a few). My guess is that its unlikely that we will have any big moves without a lead from the US.

Looking to the divining rods...
The Weekly chart is still pointing down - we got MACD rolling over and the momentum divergence undermining higher prices. On the Daily however, things are a little more bullish - stochastics have turned up and a run up to the longer term downtrend is not out of the question (~4200!). You can also see the H&S everyone has been muttering about (even though it is a poor facsimile of the one in the US). For mine the most attractive level to short would be around 3940/3950 which is the confluence of previous highs (and lows going back), and moving average convergence.

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