Market Continues Strength on News of Greek Bailout Plan

Since the market traded to new lows on Tuesday night/Wednesday morning, buyers have maintained control to give the market its largest gains since before the highs on May 2nd. The move has coincided with my expected reversal on the dollar.

This morning we are seeing continued strength as the S&P 500 looks like it will gap up over 10 points from last Friday's close. Its a strong move, but it is not so strong that this gap cannot be filled today on a reversal back down to 1330. In any case, I believe this is likely the beginning of the move back up to retest the highs (1373.50 ES) and beyond.

The move higher follows strength in European markets on reports that Germany has drafted a new bailout plan for Greece. Asian stocks also higher.

There is solid resistance overhead at 1345 (ES) and again at 1350. I wouldn't be surprised to see a bit of selling to come into the market at some point this morning. That being said, I am currently long the market, I would look at a move back down to 1333-1335 (ES) to be a buying opportunity.

More Fear in the Markets as Futures Sell-Off

Seems that fear is spreading around the world in regard to the financial markets. Futures sold off pretty hard just before 9:00pm EST last night. It has been suggested that the cause of the quick decline could be attributed to a rumor that a snap election will be called in Greece. But, the sell-off is more likely a correlation to the sell-off in Asian markets in reaction to news that earnings for companies on the MSCI Asia Pacific contracted an average 11 percent last quarter, the first drop in at least six quarters, according to a Bloomberg article. Another reason for the weakness could be that investors are pricing in the effects of a potential European airport shutdown if ash from the recent Grimsvotn volcano eruption in Iceland impacts flight safety.

Even with the current weakness and fear that is spreading across the markets, I bought the ES this morning. You can follow my position here.

I expect the 1300 level on the ES to hold today, but with negative news around the world, we could see a further move down. I'll be on a plane this morning, and I don't plan on managing any positions from the sky. We'll see how the day unfolds. Its a dangerous way to trade and you shouldn't do it unless you have a very specific trading plan.

The key thing to watch looking forward is the current rise in the US dollar. I expect the dollar to find resistance soon and turn back down toward the lows. If this does not happen, equities will likely continue their slide even lower.

I close with a video showing giant ash clouds from Grimsvotn as seen from the sky:

Markets Continue Slide

The market picks up this week where it left off on Friday, with selling. The E-mini S&P 500 Futures (ES) appear to be heading toward 1308 or gap fill from April 19th.

I would have liked to see buyers push the market higher last week, but this further push down is not a big surprise. Even so, it is best to proceed with caution on the long side right now.
Manufacturing data in Europe and in China is making negative headlines and markets are down globally this morning. The fact that S&P downgraded Italy's credit outlook to neutral on Saturday has not helped sentiment.

I will consider long positions below 1308 on the ES today. "Sell in May and go away" is proving to have been good advice so far.

Although I continue to be bullish overall, I am planning for the possibility that the markets could consolidate for an extended period of time before resuming the overall up-trend.

Levels to Watch Today on the ES

Gravity looks like it may still have some pull on the markets. There is likely further downside left to go. A close today above 1339 would counter that view and be a bullish sign. If ES does trade below 1310, I will consider long entries...

Levels to watch today on the ES:
Resistance above at: 1331-1332, 1336-1337
Support below at: 1320-1321, 1314-1315, 1308-1309

Up and Down Action

It has been an up and down market over the past week and though I continue to be bullish overall, I am anticipating the possibility of a subsequent move lower. Technically, the ES has been range bound in the lower 1330s to the lower 1350s all week. With the weakness in commodities and strength in the US dollar, it has been difficult to get any follow-through to the upside. Today's action represented the third time in the last 6 trading days in which the sellers rejected a bid to move the markets higher. This increases the chances that the market breaks down further from here. I am watching the 1330 level on the ES, a confirmed break of this level will likely push the ES down towards support at 1307-1309. This does not change my overall outlook on the markets, which is bullish.

I am currently long the ES (you can follow my position here) and will remain long. In the event the market does trade lower next week, I will continue to add to my position by buying the dips. If my sentiment changes based on further price action or news, I will update my view...

Levels To Watch Today on the ES:

Levels to watch today on the ES:
Resistance above at: 1351-1352, 1355-1356
Support below at: 1343-1344

Levels to Watch Today on the ES

Levels to watch today on the ES:
Resistance above at: 1345-1346, 1351-1352, 1355-1356
Support below at: 1332-1333, 1329-1330

A Week of Weakness. Digesting the Current State of the Market

I haven't had much of a chance to trade the markets this past week so I'd like to update my current view on the action. I was overall bullish to begin the week and in favor of buying the dips. So far however, the market has been making lower lows with the ES down as much as 47 points off Monday's high. That low showed signs of capitulation as we saw a reversal on heavy volume that moved the ES back up 25+ points or a 50% retracement to Monday's high. The fact that those gains were not held gives me some concern, but in reality, today's close is just high enough to leave room for optimism going forward. I remain bullish overall though there is certainly a possibility to see another lower low on the ES. This latest down move could be an indication of a period of larger swings both up and down over the coming months. We may not see persistent grinds upward like we have become used to since the market lows in 2009.

Reasons for the sell-off this past week:

Poor ADP Jobs numbers and jobless claims ahead of Friday's employment report. New jobless claims came in well above expectations on Thursday and the ADP report suggested that job growth was slowing. The negative implications of those numbers is now priced into the markets. The employment Situation released today showed some signs of strength as April job growth showed the highest monthly increase in payrolls since the "recession ended" with 268,000 jobs added versus estimates of 200,000. On the downside, the unemployment rate increased back up to 9.0% from 8.8% in March.

Margin hikes in silver have limited the inflow of purchasing power to the already over-extended (arguably parabolic) move in silver. Silver has since collapsed more than 27% and taken Gold, as well as the entire commodity sector down with it. With the dollar approaching the lows of 2008, this gave an opportunity for capital to flow from commodities into the currency markets (which have very low margin requirements by the way). The US dollar benefited from this capital flow and helped fuel the bearishness in US equities.

Ultimately though the dollar is still looked at as a weak currency. While I believe the dollar will see a significant rebound at some point this year and equities will likely turn down when that happens, I think the process will take some time to play out. I believe the dollar will go on to make another lower low before seeing a larger move to the upside. So with a weak outlook on the dollar and continued easy monetary policy in the US, I see another move higher in equities. I expect the S&P 500 to pass 1400 this year and will become more cautious once that happens. Hence, I continue to be bullish overall amidst the current down-turn.

Levels to Watch Today on the ES

Levels to watch today on the ES:
Resistance above at: 1373-1374, 1376-1377
Support below at: 1363-1364, 1361

I will consider long entries in the lower 1360s

Bull, Bid, Buy and Up Goes the Market

Last week saw a follow-through to the upside as the S&P 500 rose 29 points. Ben Bernanke confirmed that easy monetary policy would continue into the foreseeable future giving market participants the go ahead signal to continue buying equities. The dollar continued its trend and made new lows. It looks like the dollar index is headed for $72.

What I am looking for as we trade into the first week of May:
Possible scenario is that the S&P 500 heads up to 1400-1420 while the dollar index moves down below $72. I expect the dollar will likely see a short-term bounce at that point (NOTE: Everybody is looking at the support dating back to the 2008 lows on the $DXY, so expect the unexpected regarding how the dollar will trade as it approaches $72). However it happens, I will be looking for a correction to the down-side in equities to coincide with a rebound in the dollar. Thus, I am bullish equities up to 1400-1420 (on the S&P 500 Cash Index) and bearish on the dollar to $71-$72 ($DXY). I will be looking to play the markets accordingly.


Daily Chart of the Dollar Index. I will be looking for a bounce to the upside after a pierce of the $72 price point on the $DXY



Daily Chart of the S&P 500 Cash Index: I am bullish up to a break above the 1400 price point. I will be looking for a possible correction in equities to coincide with a rebound in the US dollar.

Any correction will likely be a small one as I presume that equities will remain bullish overall through the summer (with dull, low-volume trading).