Watchlist Weekend

Market Posture:

Dow: IT (intermediate term) Neutral and ST (short term) Neutral. It's a toss of the coin as to whether the Dow bounces into the 9,150 - 9,250 area, or drops through the 8,650 - 8,700 area and travels down to the 8,300 - 8,500 area. Next week is devoid of any really significant economic or earnings reports. The market is probably going to go tight next week, and the swings are probably going to get smaller. The wild cards in all of this are the election results and the financial crisis recession. If we get some bad news bogeys then the Dow could crack down through 8,650, which would probably take the market on down through 8,500 and into the 8,200 - 8,300 area.

Here is a chart of the Dow:
(click on image to enlarge)

SPX: IT Neutral and ST Neutral. Same story as the Dow, just different numbers. If the SPX pushes through Friday's high, then look for the 950 area, and if it pushes through that then look for the 985 area. If the SPX drops through Thursday's lows then look for some wiggle at 875, but possibly even more of a move down into the 850 area. Again, outside of a bad news bogey, keep an eye out for some tightening next week.

Here is a chart of the SPX:
(click on image to enlarge)

Naz: IT Neutral and ST Neutral. The Naz is forming a Reverse Head and Shoulders, but it has some work to do before it confirms. For now, the Naz has short term resistances in the 1,670 area and then the 1,725 area. A drop through 1,600 would open the door to a move down into the mid to low 1500's. Same story as the Dow and SPX, if the market doesn't get a bad news bogey they we could see some tightening this week.

Here is a chart of the Naz:
(click on image to enlarge)

It would be great to see the Dow confirm the Triple Bottom and the Naz confirm the Reverse Head and Shoulders, but the market is in a very fragile place right now. Traders want to bottom this thing out and buy cheap valuations, but there is a real tension in the air as nervous investors ponder what the new year will bring....It's not impossible for the markets to confirm the intermediate term bottoms next week, I just think the odds are around 30% or so. I will be ready to play bullish stocks and bullish moves in the market from one resistance level to the next, but I won't be surprised to see the markets go a little tighter next week. The worst case scenario is for a bad news bogey that thumps the markets.

On Friday, the markets shook off the bad Employment Report, which means that it was already priced in on the Wednesday - Thursday drop just as I speculated. It is becoming increasingly apparent that the market is focusing more and more on the new government and future policies as much as the "cheap valuations" caused by the financial crisis sell-off.

Potential Bullish Movers: (remember to check spreads and earnings on any Watchlist stocks)

Machinery/Construction: FLR, VMC

Agriculture/Chemicals: CF, PX

Energy: HES, RRC, SLB, DO, OXY

Financials: ICE, AFL, ACE, ZION, TROW, JPM

Healthcare/Drug Stores/Biotechs: TEVA, MHS, MYGN, BDX, CELG, CEPH

Transports/Services: UPS, FDX, CHRW

Education: APOL, ESI, DV

Note: AZO, RTN, CLX, WYNN, ENER, UAUA

I've gone through about 300 stocks or so today and I'm not exactly dancing in the streets with bullish delight. I like some of the Healthcare sector stuff, but most of the other sectors are a mixed bag of nuts. If Energy takes off then I will be ready, but that could keep Transports, Airlines, Leisure, and Retail subdued. Unless we get a big, across the board blast off, then I will probably nibble on 2-3 stocks and 1-2 ETF's at the most for any type of upward bullish drift. If the market fades away then I will probably hit the index ETF's pretty hard and see which sectors are selling to buy puts on a couple of stocks over there. Right now, next week looks like a nibbler early on. If I see some clear signals like last Wednesday, then I will hit it hard like I did last week. But for now, I may just be dipping my toe puddle until something materializes.

It may be just a rumor, but Associated Press is reporting that the new President is likely to use executive order to close down areas of the U.S. from domestic drilling for oil and gas. In the Open House Spotlight last Wednesday I talked about the impact of energy policy on the capital markets and the economy next year. If we get a supply shock similar to the 1970's while the global economy is working through the current financial crisis recession, then we are likely headed for stagflation. What that means is that the economy is contracting while prices (energy - and therefore commodities, most goods, and transportation) are increasing. When you combine a recession with inflation you get stagflation, which becomes it's own economic death spiral until some new technology gives the market a boost, or a new policy intervenes to allow the capital markets to work again. It may only be a rumor, but if it catches enough of a tailwind, then the markets could be under pressure Monday.

If the market goes bullish then I will look at my stock Watchlist and maybe also nibble on the DIA and SPY. If the market goes bearish I will probably focus on the DIA and SPY and other index ETF's.

As always, we shall see.....