What to Look For This Week

Last week we climbed a little bit higher than I expected, however, we haven't yet reached a point where I would consider the market in a continued bullish trend. Last week was options expiration and on top of that, there was very low volume. It has been the theme in the past year that the markets trickle upwards on low volume and sell off on high volume. That is exactly what we witnessed last week. Part of the up move could also be attributed to options expiration and partial manipulation of the markets to get prices to a point most beneficial to the large financial institutions. Because of that, I can't, yet, take too much from price action in the last week. This week should be more telling.

We could still see the market move up a little more without causing too much alarm for the bears. The first thing to watch for is if the highs from Friday are retested this week. If those highs are broken it will be a pretty strong sign. However, there is still fairly strong resistance between $112 and $112.35 (on the SPY). If the market confirms a move above that, then $113 becomes the next major level. A move above that and we could retest the highs just above $115. I don't know what is going to happen, but it will be very interesting this week to see how the markets test these levels. I am still positioning myself to set up Short.

Interesting to note, the past week has seen similar movement and volume to around the 2nd week of November 2009. We saw a similar up move that peaked at $111.69 on 11/16. That is .12c higher than the high on Friday. From that point the markets chopped up and down in a range between $109 and $112 for the next month and essentially continued as a choppy to slightly upward moving market that lasted into mid to late January of this year. We could see that behavior continue in this current market trend. While that is a possibility, I think it will be in a much more condensed time frame. We'll start by looking at this coming week as that time frame. So lets see if we get some choppy action this week starting with a move down from last week's highs.

The dollar is just off seven month highs and formed a bearish looking topping candle on Friday. On the same note, the dollar and the market didn't quite trade its normal inverse relationship last week. This week will be important to see how the market and the dollar trade in relationship to each other. If they resume their inverse relationship and the dollar does move down, that could push the markets up higher. I will be looking forward to see how that plays out.

Three scenarios to anticipate:

1: Markets move down from here and continue down making last week's highs a short term market top. Eventual targets would be the previous lows of $104.58 and then potentially down to the low to mid $102s.

2: We see a down move in the markets followed by another up move that retests last week's highs and either top's out there and heads back down, or maybe it sets a new high around $112 before heading back down.

3: We make new highs and see a continued bull market to retest the January highs.

Lets see how the market opens on Monday morning.