Midweek Equities & Metals Report
Source: Chris Vermeulen, TheGoldAndOilGuy (10/14/10)
"We are in a strong uptrend, buying the market is the way to go."
QE is a fast way to devalue the dollar, and the Fed is doing a great job at that. As long as the dollar continues to decline, the stock market will keep rising.
This week kicked off earning season with INTC and JPM beating analyst estimates. We usually see the market trade up the first week of earnings, and then start to sell off by the end of earnings season. Both INTC and JPM sold off on strong volume today despite the good earnings and today's broad market rally. This just goes to show the market has not forgotten 'buy on rumor sell on news'. . .the big/smart money sold into the morning gaps exiting at a premium price. Is this foreshadowing what is to come?
Take a look at the chart below, which shows the falling dollar and how its helping to boost stocks and commodities.
While earnings season is trying to steal the spotlight in the market, the fact is everything for the past two months has been about the U.S. dollar. If you put a chart of the dollar and the SP500 together they trade almost tick for tick in reverse directions. The amount of money getting pumped into the market cannot last and it will lead to a huge volume reversal day in due time. Until this happens, the market will trade higher.
Taking a look at the SPY daily chart—the 5, 10, and 14 simple moving averages (ma) tend to act as buy zones. The market was choppy from April until about two months ago. Now we are seeing the market smooth out and traders are switching to more of a trend trading strategy and not so much looking for extreme sentiment levels, which typically signal short-term tops and bottoms.
Focusing on buying at these moving averages has been providing good support thus far. Stops should be set on a closing basis, meaning—if the market closes below the moving average, then exiting the position is a safe play. It's always best to layer your stops (scale out) in trending market. So stops below the 5, 10, 14 and even the 20ma will provide you with enough wiggle room to riding a trend.
Midweek Trading Conclusion:
In short, we are in a strong uptrend and until we get a major reversal day, buying the market is the way to go. The market, as we all know, is way overbought; so if you decide to take a position on your own, be sure to keep it small. I would also like to note that financial stocks were the worst performing on the day, so that could be telling us there could be some profit taking in the next day or two.