9:00am (EST)
“We often say markets can become overbought or oversold and that support and resistance can get stretched. While there is room for some fluff, some of the major averages and sectors cleared their 100-day MA’s (moving averages) while others didn’t. We also mentioned how the 200-day MA’s were coming into play last week and that volatility would be picking up. The violent moves we are seeing are telling us something and this week will be a tricky week to trade.
We often mention how the Wall Street pros like to take their long vacations which can lead to wild and erratic markets. This week is a little intriguing because some traders will likely take Monday and Tuesday off to give them a 5-day weekend while others will take Thursday and Friday to do the same.
Many of them are feeling bullish due to the breakout but there are a number of economic reports due out this week that could rock or pop the market. Volume will be extremely light which can also cause dramatic price swings and 2Q earnings start next week. With the results Nike and RIMM reported, they should have warned investors but we will give RIMM a pass since we have told you their writing is already on the wall.
This week will be the absolute last week to confess and there have already been at least 75 companies that warned Wall Street they were going to miss estimates. That is a lot folks, and many of them are blaming Europe. The earnings bar is low enough so there could be a continued rally if the bulls can get through this week but the bears will be throwing in the kitchen sink to hold resistance.
We saw how strong the bulls held support but the 2-month trading range the market has been in could be ready to explode or, it could continue. Our chips are still betting on a move back towards support by mid-July with a possible 10%-15% correction by August but the bulls have been known to climb a wall of worry.
One stock to watch this week is Alcoa (AA, $8.75, up $0.24) which can often give clues on which direction the market is headed. If Alcoa rallies this week past $9, the market will likely test its highs for the year. If shares struggle at $9 and Alcoa disappoints Wall Street, expect a retest back to support and possibly new lows for the year.” (from 7/1/2012 Weekly Wrap/ Monday Morning Outlook)…
The bulls came into the week with all of the momentum but it was the bears who won the weekly battle (for the most part) following Friday’s breakdown. The market played out like we expected as the bulls pushed resistance on Monday and Tuesday which got Wall Street and the talking heads excited. Following a mid-week break on Wednesday and some quick chart work, we said on Thursday morning the market could be peaking and that we expected a 2% pullback.
The suit-and-ties were still bullish following an upbeat ADP Employment Change Report before the bell on Thursday which showed the private sector payrolls added 176,000 jobs in June. This was well ahead of expectations for a print of 100,000 and set the trap for Friday’s disappointment.
Of course, expectations were raised during the day as the talking heads fueled the fire but the market ended lower for the session and right at key levels we said to watch for. The hype had Wall Street and most investors expecting a good Nonfarm Payrolls number on Friday and a number north of 100,000 which would have lead to a possible breakout and new highs for the indexes. Needless to say, you could have heard a pin drop on the trading floor as the number came in southbound at 80,000.
It was the third-straight month employment grew less than 100K which was all the bears needed to hear. (continued…)
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