: FusionIQ S&P 500 Equity Market Review for May 26th 2009

As seen in the attached research note the S&P 500 after stalling below resistance for much of May the S&P 500 has now slipped below its lower channel line and is testing price support again at the 875 level. If the 875 level is violated the market will become more defensive and expect selling to materialize quickly as traders will look to lock in remaining profits from this rally.

At this point we do believe any selling that materializes on a breaking of the aforementioned support zone would be fairly short-lived and the price drop relatively shallow (10 – 15 %). We further believe if this selling occurs it will be part of a market retesting phase and would set up another buying opportunity since there isn’t a lot of supply left after the near eight months of continuous selling that transpired from August 2008 into the March 2009 low.

Additionally momentum indicators such as the 21-day Rate of Change (ROC) which we mentioned in a recent S&P 500 Review is seeing the rate at which prices are accelerating slow rapidly when compared with the aggressive pace of acceleration seen in the beginning of the advance. This divergence between price and momentum can typically be a warning sign that a near-term trend change will take place.

Since we don’t believe this will be a large sell-off investors can play this potential corrective wave several ways; first, tighten trailing stops on profitable positions or offset long exposure by shorting an equal $ amount to your long exposure of a market ETF or buying an inverse market ETF, second sell all remaining long exposure and wait for a pullback to repurchase names at cheaper prices or last and for only the most aggressive investors sell all long exposure on a support level break and increase short exposure significantly by shorting a market ETF or buying an inverse market ETF (in this option keep stops and drawdown limits tight).














posted by Peter Greene

What Green Shoots?

Some Federal Reserve officials are open to raising the amounts of mortgage and Treasury securities purchase programs beyond the $1.75 trillion that they've already committed to buying, according to minutes from the Fed's April meeting.

Officials, meanwhile, projected an even deeper recession than they expected three months earlier and a more sluggish recovery over the next two years as labor markets remain under pressure. The unemployment rate is expected to end 2009 between 9.2% and 9.6%, and stay above 9% in 2010.

http://online.wsj.com/article/SB10001424052970203771904574177673022851160.html#mod=djemalertNEWS




posted by Peter Greene

Nasdaq Levels and thoughts From Firm

As seen in the attached report on the NASDAQ 100 chart the index has rallied up to resistance the last few days and then sold off hard from that level. This would be a natural spot for the rally to stall/retrace after rallying 38% from its’ lows. Ultimately we think the index can work above this level after a good pullback/retracement of some magnitude. That said the next level of good support on the index is the 1,284 level. This level coincides with a Fibonacci retracement level as well as support from the earlier range breakout and would be a logical downside target and support level. Ultimately and only mentioned as a frame of reference, should we work eventually above yesterday’s resistance level the next target up would be 1,700, which would be a combination on a downtrend line and the next resistance zone. Though for now we are more concerned with the present which suggest we are in rally correction mode.

Certainly there was some conviction to the selling yesterday as down volume swamped up volume by a ratio of 27 to 1 and decliners bested advancers by a 6.2 to 1 ratio. For now the near-term trade direction is down until proven otherwise via internals improving dramatically and/or yesterday’s resistance being decidedly cleared.

Nimble traders can trade from the short side for a bit while others may want to use an index ETF to grab some temporary short exposure. Additionally for those who have substantial profits in names we would tighten up the stops.




posted by Peter Greene

Monday firm morning comments

The market is a bit extended here without any pullback, however as our sentiment piece suggests liquidity remains favorable in terms of the intermediate to long term. So how one chooses to play this really is more about their trading/investment style.

There are several options; first for those who are more flexible they may choose to put on some short exposure by shorting some index ETF's (such as QQQQ or SPY) or buying some inverse leveraged index ETF's such as the QID (which have corrected from $71.00 down to $35.50 (at its recent low) without so much as even a bounce)

Second some others may just choose to ride out what may we believe at present to be a normal, healthy and needed pullback.

And last but not least some may use the weakness (should it materialize) as a buying opportunity.

In the words of famed market analyst Ralph Bloch, "If we could make the market do our bidding," we would prefer to buy some leveraged inverse index ETF's see a 5 - 7 % pullback then unwind those at a profit and then buy back into select longs for a move up to our 950 S&P 500 target.

However we know these dream trades where everything works out exactly as you plan don't unfold to often if ever lol !.

But for the record we like being pro-active with tight stops and after a 40% rally from the lows to have reduced long exposure hedged with some short exposure makes sense for the time being.




posted by Peter Greene

Firm morning note

We continue to like the market action yesterday as dips continue to remain shallow and short-lived as buyers line up quickly on pullbacks to buy stocks. These shallow dips reinforce the idea that sellers are not to be found at present (most likely because most capitulated near the lows) and buy side liquidity remains strong. This morning US futures reversed nicely as the ADP payroll Employer service gauge a lower than expected number of workers cut from payrolls in April. It was the smallest drop in payroll cuts since October of 2008.

On the technical front the trend remains up and the S&P 500 broke above resistance near 878. Our next upside target it 950. Sentiment will be the key to determining when to make wholesale reductions in long exposure and right now though those indicators have moderated sentiment has not flashed a contrarian sell signal yet by being excessively bullish.


Please Check Page 2 for some recent shorter term trade ideas and returns...we added two trading names Tuesday




posted by Peter Greene

Ford and Renault to merge

RENAULT & FORD TO MERGE

Renault & Ford are working together to build a small car. They are using the Renault Clio & the Ford Taurus as a basis for the new
zippy little car, The "Clitaurus". The car comes in pink, with or without fur on the dash.



posted by Peter Greene