Just a quick update today. This market continues to look for a short-term bottom and we will let you know when that happens. The trend for now, however, is still down.

Oil, on the other hand, is beggining to show some signs of life here as we continue to look for a valid support level in this trade. Check out the chart:



If I had to take any guess, I’d say oil is headed higher from here. Demand continues to outstrip supply worldwide, and honestly, its not as if the United States has quit using oil overnight. Furthermore, the trendline is very intact. That, coupled with the fact that oil is quite oversold, makes this a very interesting trade on the long side.

-Andy

The XLF and GM are two trades we are looking into these next few weeks:



The XLF has seen a nice rally from $17 thus far. Some banks actually beat their shockingly low estimates (applause). However, there is big technical resistance at $22 a share and we don’t believe this rally will last. The XLF is currently overbought and ideally, we would look to initiate a short position at $22 with a tight 2.5% stop.



The same goes for GM. The stock has seen a nice run from around $9 (yes, $9/share) to its current price of around $13.5. The fundamental story remains the same, however: they still do business in the automotive sector and they still have massive inventories of trucks and SUV’s that they will simply not be able to get rid of anytime soon. There is big technical resistance at around $17.5. Ideally, we would loook to initiate a position in this price area with a 2.5% stop loss.

-Andy

Apple of all companies reported a relatively weak quarter just minutes ago and currently, the stock is getting crushed, last trade $150. This is on top of Google’s flat out miss last week, not to mention an assortment of other tech names to miss outright as well. Consequently, we are beggining to see some strong weakness in the tech sector, as we believe that the current year estimates for tech are far too high. We believe tech could follow the trend that the financials/homebuilders have already seen into the remainder of the year.

Take a look at the chart:



The Nasdaq is clearly going to be retesting that 2000 area on this news. Currently approaching overbought status, we believe there is definitely a trade to be made here on the short side. We will be monitoring this closely into the remainder of the week.

-Andy and Sul

Well, as we said a couple days ago, we did indeed reach a short-term market bottom last week, as we have now seen about 700 points of upside on the DJIA since the bottom. We, however, believe this rally to be short-lived, as there really is no argument against the fact that this economy continues to struggle. Plainly, what we saw last week was a classic dead-cat bounce as short-sellers looked to cover what have been some unbelievable trades over the past month or so. Traders should use this rally as a way to sell any current long positions.

Let’s take a look at the S&P500 chart:



Major technical resistance continues to be at that 1275 area. Until we’ve broken that level, this market continues to look bearish in the short-term. Count on this level to be tested into the next few weeks. Odds are, however, that we will test it and kiss it goodbye. Earnings have been pretty much what we have expected: sub par with most noting “difficult” economic times ahead.

With regards to oil, it looks as though we may finally see some weakness in what has been an unbelievably bullish sector.



The short-term uptrend in oil was definitely broken last week as institutional managers were looking to take profits on the only sector which they had actually been profiting from. Unless we see some crazy crude inventory numbers, oil is heading lower for the short-term. Longer-term, though, the trend is still bullish.

With regards to Nucor, well, there isn’t really much to say. Excellent quarter, good earnings, conservative guidance (historically typical). As a trade, it was poor and we got stopped out at -2.5%. For anyone looking to pick up a quality stock with a longer holding period (six months to a year), this one is definitely attractive, especially on valuation.

-Andy and Sul

Wow, what a day today. We had been searching for a short-term bottom for some time now and today finally gave us something definite to work with. Wells Fargo started the day with better-than expected earnings, not to mention an increased dividend and that sent us off to the races. We will be looking for a nice little rally to follow here.

With respect to NUE (Nucor), we have been following this stock closely and we think this one is a buy into earnings tomorrow:



Technically, the stock looks excellent. Support at that $61.50 area has been tested a number of times this past week, but buyers have been willing to step in consistently to move the stock higher. Today, NUE managed to close above it's 200-day moving average on successive days of good buying volume, which is bullish. The other indicators look to be reversing to the upside as well.

Fundamentally, the company looks excellent.



Nucor is in what has been a terrific sector (steel production) recently, where global demand is far out-pacing supply, giving the company much more control over production margins and pricing. Furthermore, the company is cheap on a valuation basis with a 13 P/E as opposed to US Steel and any decent earnings could send the stock higher. UBS and CIBC World Markets recently upgraded NUE and Goldman Sachs rates it as a buy.

We are currently trading this stock into earnings tomorrow.

-Andy and Sul

This market is getting pretty scary. More bad news out of the financial sectors on Friday put stocks deep into the red. The VIX is on the verge of breaking out past previous highs at that $30 mark. Some may see this as a buying point, but honestly, with the S&P500 failing to hold onto that 1275 area, this market is surely headed lower, unless we see some unbelievable earnings/drop in oil prices these next few weeks. Only then could we actually see a short-term bottom. As I said before, stop losses are critical when trading this current market.

With regards to oil, the trade continues to be bullish as the uptrend was held last week. The following chart is of the USO (United States Oil Fund):



With regards to next week, here is your economic calendar:

July 15: PPI, Retail Sales, and Business Inventories
July 16: CPI, Crude Inventories, FOMC Minutes
July 17: Housing Starts, Initial Claims, Philly Fed

- Andy

Lot's of positive things to take away from today. We mentioned earlier that any drop in oil prices/beat in expectations would lead us higher, and that's exactly what got us going today:

• Oil dropped 5$ today
• Bernanke comments that emergency central bank lending may continue for failed Wall Street firms (like they would do otherwise)
• Freddie Mac and Fannie May up 16% and 14% respectively, financials overall were strong
• Alcoa beats estimates after-hours

And we got a nice 150 point pop on the DJIA, 51 on the Nasdaq, and 21 on the S&P500. So where do we stand currently?



We really need to hold onto that 1275 area on the S&P. The MACD, Stochastics and RSI are all flashing overbought signals and look to possibly be heading higher. A few more good earnings/drop in oil prices should do the trick.

The Nasdaq looks by far the best index here. The strength today was exceptional, a 2.2% move on good volume. If you want to make any long trades in this market, tech looks the best of the bunch here.

On that note, however, I am noticing a very definite head and shoulders formation in the works of all the major indices. This needs to be taken note of, as it is very bearish for the longer-term trend.



If this market continues to move higher, there are definitely long trades to be made, starting with AAPL and BIDU, both of which look poised to move higher in the coming weeks:



AAPL held support at the 165 area, which, incidentally is also the 200-day moving average. The buy volume for this stock has been increasing steadily and all other indicators are pointing this stock higher. I think AAPL will crack the $180 area and see 190+ very soon, especially given the new iPhone rollout this Friday.



BIDU looks just as appealing. The stock actually violated the 200 day moving average to test support at the $300 area, only to bounce off that support back up past the 200 day moving average. Again, good volume, good indicators, and looks to be headed to test the $360 resistance area.

Remember to use stop losses! This market will make you suffer if you don't.

-Andy

Wow, well it's been an unbelievably negative couple of months in the markets. Worries about global inflation, not too mention a global recession have put markets deep into bear market territory. Anyone that followed anything that I wrote over at socaloptionstrader.blogspot.com will not find this as a surprise, as we have been saying this market was headed for a recession since January. For those that still believe we may see some upside over the course of the year, we will politely disagree with you. This market is selling into any good news, thus the "bear market" title. That being said, however, this market is oversold currently, and we are looking for a medium sized bounce to the upside here. Let's take a look at the charts:




Support for the S&P500 can be found at about the 1275 area, the lows set in February and March of 2008. Now, technically, we have already broken these support areas, however, we will find out this next week whether or not there are any buyers at these price levels.

Until we find out the next short-term direction in this market, though, it may be safe to stay on the sidelines and let the traders determine where we are headed for the next few weeks. Remember that we are still in a bear market and any trades on the long side should be considered just ONLY trades. The trend without question is still down. But with earnings just around the corner, this week is sure to be an interesting one, but as I said before, one that we'll likely be sitting out.

-Andy