Momentum Stocks Weekly

I stayed aggressive on the run to fresh highs this month, but I have been warning that a trading range or possible pullback could develop afterwards. This doesn’t mean that higher highs aren’t in store this week or next month, but the technical indicators I follow are giving mixed-to-bearish signals at the moment.

The market finished mixed on Wednesday, with support and resistance holding on both sides. The possibility of a continued trading range with upside potential for the bulls is still high, but further weakness could tilt those odds in favor of the bears.

I could take action on AAPL or Dow options today, shortly after the open. If I do, be sure to look for a possible New Trade Alert. This week is all about Apple, the Dow and the VIX.

The market hates uncertainty, so it wouldn’t be surprising to see lower lows this week. The bulls appear to be on the brink of losing their grip, but the bears are in the same camp if Greece can somehow work out a deal to make the markets around the world happy. Earnings expectations are low, and it will be important for companies to beat the lower bar for profits and revenue expectations. While I’m still hopeful that a continued rebound is in the works, I’m remain wary of headline news and continued volatility if 20 on the VIX fails to hold.

Greece’s Finance Minister resigned, so a new deal could be reached even though the country is in arrears and is a complicated mess. It remains to be seen if other countries in the euro will feel jaded if Greece gets a kitchen pass but it is too early to see what domino might fall next. In the meantime, our portfolio is light and well positioned to add new trades to play further weakness, or to add bullish trades, if the trading ranges and 10-year uptrend lines hold.

The market is mixed for June, with the Dow down 64 points and the S&P off by a 6-pack. Tech is up 10 points, and the small-caps are higher by 33 points, or nearly 3%. There are two trading days left in the month, and there could be a 1%-3% move lower (or higher) by Thursday for these indices.

For now, Wall Street’s biggest worry has moved from the Fed to Greece, again. While it is likely inevitable the country will default and leave the eurozone, talks of the PIGS returned. Concerns over Portugal, Italy, and Spain having a domino effect on the euro with a Greece exit heated up. To make matters more interesting, Russia is joining the party and could dance with Greece.

Quarterly reports will be the next market catalyst following the Fed news, so there will be plenty of action to play between now and into late July. The portfolio is well positioned to play the next major trend, as we continue to bank profits despite the incredibly tough trading ranges that we have been in for months.

This week promises to be exciting, as does the rest of June. The current sector rotation and divergence has Wall Street confused once again, but they don’t study the market like I do. Retail and restaurant stocks have taken a beating on the rise in oil prices, or so analysts say, but I have been highlighting the strength in the financial and small-cap stocks.

May turned out differently than what most of Wall Street had planned for as the market finished the month higher. Despite the recent choppiness, the bulls are holding the top of the four-month trading ranges and are still gunning for historic all-time highs.

Despite the hard stance of “sell and May and go away,” Wall Street might be playing catch up again when it gets back from break. This week will be shorter than usual due to Monday’s holiday, but the first trading day after Memorial Day is usually bullish.

The importance of the Transports holding their recent lows has a lot to do with Dow Theory. Old school traders like to see both the Dow and the Dow Transports making new highs in tandem in an overall bullish market. Obviously, this is not happening with the blue-chips near all-time highs while the Transports are planted below their 200-day moving average.

The bulls continued their May momentum, as they rebounded from a choppy week with a strong Friday to get the weekly win. The bandwagon-jumping could continue despite the indices closing in on the top of their trading ranges, as traders (and the Fed heads) continue to try to call a market top.

While May has a reputation for being a bearish month, it has been bullish in recent years. During the past 16 years, May has been split, with the bulls and bears getting eight wins apiece. The “sell in May and go away” theme started gaining steam on Thursday’s pullback but settled down on Friday’s rebound.

For this week’s clues, watch the action in the small-caps and the VIX. I predicted single-digits for the VIX last year, and there is a good possibility that another test to 10 comes at some point this year. Last year’s test to 10.28 came in July.

I have said for over a year now, the Nasdaq hasn’t come this far not to trade at record all-time highs. It is also important to remember the Russell 2000 just hit another all-time high last Wednesday. The lack of follow through on Friday was disappointing but one-day doesn’t make or break a trend.

Last Friday’s win was the Dow’s third-straight up Friday along with an up Thursday ahead of Good Friday. Up Monday/Friday closes usually signal money is moving into the market while down M/F closes signal cash is moving to the sidelines. Mixed Monday/ Friday closes can indicate trading ranges.

The goal is to stay calm this week and to let the dust settle from the two-month trading range that has been keeping both the bulls and bears at bay. Once the all-clear signs are flashed, we will take action. The first quarter was incredibly busy and profitable, so the last thing we want to do is to give away profits.

History shows that when Wall Street and Main Street have been this bearish in the past, the S&P 500 has risen 98% of the time. Even more mind-blowing is that the average gain is more than 25% on the index. This would equate to the S&P trading past 2,500, but don’t tell this to the suits and ties.

While it is easy to say that the market rallied following the Fed’s more dovish stance, the real reason was based on the technicals, which is why it is so important to track them each and every week.

I have been warning that any closes above 17.50 could lead to 20-22 but the bulls held this level throughout all last week. If the bulls can get below 15 to start the week, it would be a nice signal higher highs are in store.

The unemployment rate dropped to 5.5%, and the headlines immediately started asking when the Fed would hike rates. Although a quarter-point rate hike is now nearly a given by June, traders took profits, and the market had one of its worst days of the year. The damage gave the bears their first weekly win in five weeks and created the buying opportunity that the suits and ties have been waiting for.

For the Wall Street pros who went short last month, they have to be worried, as hype of Nasdaq 5,000 gains (and loses) steam. February was an incredible month for the market, and the current momentum is being questioned heading into March.

The bears will be looking for revenge this week, as the last part of February is historically bearish. The bad news for the bears is that the bulls broke out of a four-month long trading range, and they have momentum.

Geopolitical concerns overshadowed earnings and economic news last week as the bulls and bears battled over near-term support and resistance levels.

The bears made another attempt at cracking prior support levels as well as the 10-year uptrend lines at last Monday’s open and had January’s momentum going into February. However, the action turned on a dime following a test to the 200-day moving averages, as the major indexes held support and the bottom of their trading ranges while the bulls got a rare Monday win.

The bears pushed the bottom of the trading ranges and won the month of January following last week’s pullback. The bulls rebounded late in the week, but Friday’s session ended on a low note. The January and December lows are once again in play following the late-day drubbing.

Wall Street was on standby throughout last week and ahead of the European Central Bank’s (ECB) major stimulus policy announcement. The bulls showed strength into last Thursday’s news, and much of the herd was betting on a pullback.

The bears held momentum throughout the week, but the bulls snapped a five-session slide on Friday. The action into the close was bullish, as the indexes reclaimed resistance, but volatility is still elevated.

The market ended the week on a somber note and with heavy hearts, as terrorist attacks in Paris escalated. The jobs numbers pleased Wall Street, but violence around the world continues to be a concern. The start of fourth-quarter earnings season and the continued debate over interest rates starts this week.

Wall Street closed shop early last week for the holidays, and most traders took extended vacations on Friday instead of fighting with the bulls.

The small-caps gave one of the best clues that a market bottom might form quickly following a back test to 1,140 to start the week, with only a one-point loss on Tuesday’s overall market slide.

I have a lot to cover so it is crucial you absorb today’s information. I’ve done all the homework for you and the portfolio is proof in the pudding that I this is exactly what I wanted to see happen last week.

The bulls wrapped up their sixth-straight week of gains and dominated November’s action with all-time highs. The market clearly has momentum, and December is historically a bullish month. However, the Russell 2000 did finish slightly lower by less than a point and remains the wild card.

The major indexes are still on track to trip my year-end targets from February, and I’m already starting homework on how 2015 might play out. December will be a pivotal month, though this week’s action could be subdued, but the good news is that the week of Thanksgiving is usually a bullish one.

Once Wall Street recognizes that the Nasdaq is headed for a test of its all-time highs, there could be some chasing. All that money on the sidelines will be itching to go to work as fund managers who have underperformed the market start to panic.

November is historically a bullish month for the market. December is also a bullish month for stocks, and my year-end targets I gave in February 2014 could be back on the map on continued smooth sailing.