No Negative News In the Near Future – Market Should Be Able To Hold This Level Next Week!

Let's keep it short and sweet today. The market was ready for a disastrous event (credit crisis, political conflict) and it did not happen. A typical snapback rally has resulted in we are back above the 200-day moving average. The fact that we have been able to hold this level for a few days is positive. As I've been pointing out this week, the market has rallied into earnings season last three quarters. The economic news has been light and it should not get in the way of this rally next week. Durable goods orders and the final estimate for Q1 GDP will be released. Neither of these events should have a material impact on the market. On Wednesday, the FOMC will release its statement. I expect the rhetoric to stay the same. This week, the market has been able to discount a couple of negative news events. Spain had dismal bond auction results and interest rates spiked. This is not a good sign and the PIIGS still have a lot of cash to raise this summer. Initial jobless claims rose 12,000 to 470,000 and the 4-week moving average is climbing. I believe we have seen the high for employment this year. The fact that the market was able to take this news stride leads me to believe that we will see positive price action the next few weeks. Quadruple witching and the rebalancing of many large indices has fueled the rally. Shorts have also started covering positions. There are a few obstacles that the bulls will have to overcome in the next few weeks. Resistance at SPY 115 is formidable. We are close to that level and it will attract sellers as we get closer to it. Two weeks from now, the Unemployment Report will be released. If it is the second weak report in a row, the market will tank on worries of a double dip recession. On the other hand, if it hits estimates, we are likely to grind higher into the middle of July. Once banks start releasing earnings, weakness will set in. By late August or early September, I expect support at SPY 104 he challenged. Economic conditions will have deteriorated and the credit crisis in Europe will escalate. Maintain a slightly bullish bias for the next month and keep your distance. When this market rolls over, be ready to buy puts. I am keeping my size small and I am limiting the number of positions. My strategy is to sell out of the money put credit spreads. They should safely expire in July. As implied volatilities decline, I will start accumulating longer-term put positions. Happy Father’s Day!

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