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March 31, 2011
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Is the stock index futures putting in blow-off high?
* Due to time constraints and our fiduciary duty to put clients first, the charts provided in this newsletter may not reflect the current session data. However, market analysis and commentary does. Charts provided by Track 'n Trade, Gecko software.
**Seasonality is already factored into current prices, any references to such does not indicate future market action.
Please note: e-mini S&P and e-mini NASDAQ chart are used because they better for charting purposes, but trade recommendations can be applied to either the full-sized S&P or the mini. Unless otherwise noted, profit and loss will be based on the mini version.
It is difficult to be bearish equities in the face of a runaway market. Despite statistics that suggested stock fund managers tend to liquidate holdings in late March and a mid month dip that some believed would yield windfall profits for the shorts, blue chip stocks had the best quarter since 1998.
There are plenty of reasons for stocks to sell off, but that doesn't mean they will right away. Higher crude oil, continued unrest in the Middle East and European debt woes will eventually come back into the headlines. However, in the meantime we seem to be in the middle of a short squeeze that could have a little room to run.
Consensus estimates are calling for about 185,000 jobs added last month based on the government data to be released tomorrow but the market is probably pricing in a little higher. That said, we are due for an upside surprise and if so it could be the perfect storm for the infamous last hoorah rally before going into correction mode.
From yesterday, but still equally important:
However, April isn't the month to become overly bullish. History suggests that it is one of the best months of the year to be long. For instance, according to our sources, since 1950 through 2010 there have been 42 positive April's and 19 negative. This is a nearly 70% track record with average gains of about 1.5%. In pre-election years, the numbers are even more impressive at 14 gainers to 1 loser with an average gain of about 3.6%.
In the coming days, be on the lookout for a "capitulation" buying move that brings the June S&P into the 1340's as an opportunity to get bearish. If you are the type that is anxious to get in...there is some resistance at 1333 and this could be considered a place for aggressive traders to nibble on the short side.
Our original target in the Russell was 840, but given the fact that small caps of out-paced the S&P we now think the odds favor a little higher. Consistent trade above 840 suggests 857 could be on tap. However, we have doubts to the market's ability to hold gains to the noted level without some digestion.
If you are a day trader, fading the news can sometimes be the best trade. Like my friend (I wish) Warren Buffet says, "Be greedy when others are fearful and fearful when other s are greedy."