9:00am (E
“The bulls have been smooth sailing for 7 weeks now but could be approaching chopping waters. While last week had its good and bad points, the bears seem to be waking up from hibernation although it hasn’t shown up in the overall indexes. February has always been a tricky month to trade because it is usually the weakest link in the historic 6-month bullish runs from December through April to early May. Average losses for the month are around 1%, but so far, the bulls are up 1%.
The Dow has gained over 120 points in February while the S&P 500 and Russell 2000 have hit blackjacks (up 21 points). The Nasdaq is up a Fifty and the S&P Volatility 500 Index is in the low teens. The current closes on the indexes are exactly where we said they could be nearly a month ago.
Here were our thoughts from our January 21, 2012 Weekly Wrap:
“With some of our fluff targets being triggered, we must now focus on the extended targets we gave you last week: Dow 14,000; S&P (500) 1,500-1,525; Nasdaq 3,200-3,250; and Russell (2000) 900-925. There could be a pullback to support or prior resistance levels if Apple, Google and IBM come up lame but we are expecting higher prices for the market through the end of January and possibly into February if we get some more can kicking by the zombies.” (END)
All of these targets were triggered last week and that has us looking for a pullback. There is still a chance the indexes trade higher from here and into March like they did last year, but it’s rare the market does exactly what you expect or want it to do.
This doesn’t mean we know the exact day a pullback could start or how much it will be, but we can start preparing for one as we wait for the clues. We will also have to determine if it will be a short-term pullback and one to buy or if it will be a longer-term pullback and one to load up on by using put options.
If there is a further push higher from here, it could come over the next 2 weeks despite some major headwinds approaching. The S&P 500 made twice the gains last year compared to this year in February so far as the index zoomed 50 points ahead of Presidents Day and added another 1% by the beginning of March. A week later, the S&P fell from 1,374 to 1,340 that was nearly a 3% dip before clearing 1,400 by the end of March. The run from 1,340 to 1,410 was over a 4% gain in 3 weeks.
This is how everyone wants the current market to play out over the next few weeks but we worry any “dip” could become a full-blown correction. The pros (and rookies) are trying to “time” this market but as you can see from all of our aforementioned comments, it is more important to predict where the market will in 2-3 months and not on a daily basis.
The President’s State of the Union address did little to soothe fears on the upcoming sequester cuts that will take place on March 1 which is just 10 days away. Air Force One took the head zombie down to Florida over the 3-day weekend to golf with Tiger as his A-List grows but the President seems unwilling to cut spending the way the Republicans’ would like.
Some of the water-cooler talk is that the sequester cuts aren’t a big deal and that they should happen. To us, it is a big deal that could cost the economy well over a million jobs (that will need to be replaced) and the automatic spending cuts could trim the country’s Gross Domestic Product (GDP) by more than a full percentage point. There is grapevine talk Obama is set to release a $1.5 trillion budget plan but will it gain traction in 10 days is the question.
Our best guess is the Republicans are not going to compromise by March 1 and the question will then be how much pain can they take. Once the sequester cuts begin, at some point they will have to compromise with the Democrats and Obama to come up with a different deficit reduction plan. A week or so of seeing the dominoes start to fall will cause some panic and this is when we would expect a “new deal” or compromise.
If the sequester cuts play out like we have planned then we could continue to see a higher drifting market until the end of February then a pullback into the first or second week of March. There could be a rebound rally to new highs that could last into April but the current budget resolution expires at the end of March and a new one will need to be in place by mid-April. In May, the Debt Ceiling debate will come back into focus.
We talked about the Monday/ Friday closes last week and we mentioned the bulls needed to get off to a good start if there was going to be a break to new highs. The S&P fell both Monday and on Friday which makes Tuesday and this Friday even more important. Although the losses were small, it was the first time in a month the index has fallen on a M/F.
This week, China will be back in the news following a week long layoff and there will be some important economic news here at home we will have to watch for. The G20 comments suggested there is currently not a currency war but currency worries and the Fed’s Minutes from January will hit mid-week.
We wanted to touch on the metals real quick and we will wrap things up.
Gold has been dropping like a rock and could test $1,550 if the dollar continues to rise and the $1,600 level fails as support. There may be a buying opportunity if this level holds. Otherwise, wait for lower prices because it could get another 5%-10% cheaper over the next 6-12 months if $1,550 fails to hold.
As far as Silver, it has dipped below $30 and we would love to see it come back down to $27-$26. A drop to $23 is unlikely but would represent an incredible buying opportunity and a great way to play a rising dollar and inflation.
With some of the indexes still fighting to reach new 52-week highs, the market does feel as though it is topping out but it will be important we remain patient.
The downside targets we gave you from last week and reviewed this week are still in play as well as some of the upside targets we gave you a month ago. This means the market’s upside appears to be more limited over the near-term than does the downside but support is holding and something we must respect.” (from 2/18/2013 Weekly Wrap Update)…
The bulls were able to crack another layer of resistance to start the shortened week but the bears took down 2 levels of support following Tuesday’s short-lived rally. The bears did the bulk of their damage on Wednesday following the FOMC minutes as the market suffered its worst day of the year. The follow through on Thursday gave the bears the weekly lead going into Friday’s session. (continued…)
****************************
If you are not a subscriber but would like to read more please click here. We are one of the fastest growing stock options trading advisors on the internet and we had an incredible 2012. We offer 2-3 powerful call or put option trades each week (depending on market conditions) aimed at triple-digit returns for our Daily newsletter and our Weekly Wrap Covered Call Portfolio strides for double-digit returns on a monthly basis. Together, we were 159-70 (70% win rate) for both newsletters in 2012 with over 30-triple-digit winners. Our 5-year track record from 2008-2012 is now a staggering 621-273 that is also a 70% win rate. We doubt you will find a better options trading service.
The steep losses were a reminder of what could be coming down the road but the bulls were able to rebound after one of the Fed zombies said there was no way they were easing off the QE gas pedal anytime soon. What the Fed head really wanted to say was “don’t fight the Fed” but Wall Street got the message as the indexes recovered much of their losses to finish mixed for the second-straight week.