Market Flattens Ahead of the Holiday Weekend

Pre-market futures are fairly flat ahead of the open. There is a relative absence of economic or market-driving news. The technical levels from yesterday are still the pivotal areas for today.

It is interesting to note that SHLD is up very sharply in pre-market trading after posting better than expected earnings results. This comes after ROST did the same thing yesterday, and TGT the day before. GPS is also up pre-market after reporting better than expected earnings. The retail sector is keeping its nose above water, and some stocks like SHLD and ROST are actually swinging up. It's encouraging to see that consumer spending hasn't completely collapsed for some retailers.

What isn't as exciting is that the dollar keeps dropping, which is causing energy and commodity prices to stay high, even if consumption is not driving the rise in prices. This comes on top of the hedge fund managers buying shares because of the demand/supply risks associated with a new world consumption paradigm. So we are experiencing a mini inflation in oil and commodities based on a falling dollar and speculative buying over a lack of energy policy. Many energy stocks were on my bearish list yesterday after a series of lower highs / Shooting Stars / and Evening Stars. This morning, many of those same energy stocks are going to gap back up where they gapped down yesterday (BHI, NOV, OXY, DO, RIG, etc.). So continues our wild market reactions to the directing of the economy. However, despite the inner conflict in the energy sector, I have still moved many energy stocks to my short term bearish list for puts.

Here are stocks on the bearish list today: energy (ECA, SLB, XTO, EOG, NBL, APA, CNQ, DVN), railroads (UNP, BNI, CSX), metals (ATI, X, CLF), coals (CNX, BTU, ANR, MEE), other commodity stocks (PX, APD), and other bearish stocks (CAT, FDX, UPS, BA, UTX, MMM).

7:50 am MT: The SPY opened flat and is headed towards the 88.00 support level. Yesterday the SPY found intra-day support at the top end of the 88.00 - 88.25 support zone.

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

The SPY (market) will probably try to test the 88.00 area today. The three-day weekend will probably dictate some profit taking this morning, and also in the last hour. In between that time it will be important to watch the short term support and resistance levels. If the SPY pops above 89.80 - 90.00 then puts are mostly off the table for me. If the SPY hits the 88.00 zone again, it will be a place to take partial profits on puts. If the SPY breaks down through 88.00 then it's likely headed towards 87.00, which will coincide with the SPX dropping to the low end of its short term support zone.

I speculate that the most likely scenario today is the market will fade a bit, then grind at 88.00, and then drop through a little. I don't think it's likely that the SPY can drop below the 87.00 area (870 on the SPX). I think there is just enough stimulus with the three-day weekend for profit-taking down to the 87.00 - 88.00 area, but also just enough absence of economic data, along with some positive retail earnings reports, to keep the market from selling below those levels. As always, speculation is probability, so keep an eye on the 90.00 area in case the lower probability scenario plays out.

For now, the bearish downswing continues.....

11:40 am MT: The market continues to grind intra-day. This is a mini tipping point on the SPY and overall market. The SPY and SPX are forming either a rollover pattern or an intra-day bull flag. A move above 90.00, which was the early day tipping point, is still a signal that the day has tipped to the bulls. Even if the bulls push the market above 90.00 and make a run to 90.50, there is still some risk of last-hour profit taking ahead of the holiday weekend.

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


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

You can see the either/or pattern forming on the SPX 60m charts a little better than the SPY. This is another one of those real world vs. fantasy world moments for the fundies. In a normal long term bearish environment ahead of a three-day weekend, with the SPX support level clearly at 870, and a "Sell in May and Go Away" market cliche on the table, this would be a no-brainer rollover moment, like 75/25 type of probability. In the current long term bearish/fantasy bullish environment, this is a toss of the coin, or 50/50 probability.

There is the possibility of a smash and grab just above 90.00 on the SPY. What I mean is that as volume lightens up ahead of the long weekend, some traders may manipulate a technical breakout above 90.00 and then smash the pop back down by grabbing more profits. Right now, I'm sitting on my hands. I probably won't play any break above 90.00, and if the signal fails and starts to fade, I may look at puts for a run back down to the 88.25 - 88.00 area. However, a drop to 88.00 means that some big players would still be hanging around and not already flying off to the Hamptons or headed to the beach somewhere.

We'll see which traders show up in the last several hours.....

1:15 pm MT: Two things.....one is that the market is trying the break out to the upside on the consolidation I just charted for you (the SPY hit 90.00 exactly), so this is where you would watch for a late-day smash and grab. Two is that you should ignore the Sleestak photo of me, I'm playing a funny on a friend for a couple of days. And I don't want any jokes about "has anyone ever seen Dwight and a Sleestak in the same room together." I guess if I can turn Alan into Spotlight Ninja then I can make fun of myself.....

1:20 pm MT: Speaking of fun.....the market popped and is getting hammered right back down. So the smash and grab I warned of is playing out exactly. The smash and grab will complete itself if the SPY drops below 89.20 or so. Looks like the breakout traders just got there heads handed to them.....well, I can't warn everyone, I just do what I can on this blog.

2:00 pm MT: I was correct about the smash and grab. That was actually a 1.00 point play on the SPY from high to low in the last hour. Any Daisies (day traders) that tried to be breakout traders on the intra-day consolidation just got a lousy going away gift for the holiday weekend.

The trading today finished out as a Doji type of day on the SPX. It means that the 88.00 area on the SPY as a pivot area for support, and the 90.00 area as a pivot area for resistance, just got a little more important. Whichever way the pressure releases on Tuesday will be the play, so I will compile a list of both bullish and bearish stocks to watch for next week.

This is the last day I will be doing live market analysis on the blog. I will be posting the new service website address soon. I am still going to do some public service on the blog, but the trading service now moves to the new, live service. I know that some of you have wanted to see demonstations of things like contingency orders, setting up market internals, or explanations of chart patterns, etc. I will put together an occasional short training video and post it on this site as a courtesy to viewers. But this blog will now be mostly a site to direct people to the new, full service site I have put together.

I will give you updates later this evening and throughout the weekend about everything I am doing on the new site. Thanks for following along with me and supporting this blog. I have enjoyed working with you very much, and I look forward to continuing to work with you in a new service.