Market Outlook for the week of March 16th, 2009 (UPDATE)

Well I got the action right this past week for a change. Shear luck. But the real difficulty is predicting this next week. Let's take a look at a number of data points to glean some prognosticative abilities. The Dow ended the week over 7,200 to close at 7,224 on 4 consecutive days of very strong volume. The S&P500 ended the week over the critical 740 resistance level, closing at 756. Both Indexes closed over their 20 day Moving averages, but just barely.

The VIX Index closed at 42.36 after hitting an intraday low of 40.03 and it hasn't been at this level since the end of January. It remains below the 20, 40 and 60 day Moving average. The Put to Call ratio ended the week at 0.71. Click on the Chart above to see the trend from January 2008 to close on Friday. You will notice most recently the trend is down. When the Put to call ratio is low it is a sell signal and when it is at the highs it is a Buy signal but what is high and what is low is all relative. As I mentioned on an earlier post, back in the year 2000 I would use the Put to Call to time trades. But back then the lows on the Put to Cal ratio were as low as 0.3-0,4 and often signaled to me to sell. They were just a bit outside 2 standard deviations limits from the rest of the data. And on the opposite side I would recommend Buying at the 1.25-1.35 level. You can play with data yourselves by clicking on this CBOE link and selecting "CBOE Total Exchange Volume and Put/Call Ratios". The data goes back to 2003 to now on a daily basis.

The Candlestick pattern of the Dow on Friday was a Doji which shows a struggle between the Bulls and Bears for direction. It also implies a possible change in direction. And one last point about the chart pattern and where we are. We had reached a new bottom in the market a little over a week ago when the Dow hit a new low of 6,440 and the S&P hit a new low of 666. We have not retested those levels and therefore most likely will need a retest to insure we made a bottom.

So if I were a betting man, and of course you know I am, considering all this data, if we get any bad news this coming week we most likely will reverse this movement up. If on the other hand there is some surprise good news this week, the market will continue to rise. Eventually we will drop back and retest the lows. So this is at best a trade, not a Buy and Hold. The only decision you must make is when to sell to look in a gain and how long to ride this up. Technically we could go to 8,000 or above before we come back down to ground and retest. So take a measure of your fortitude and your level of risk taking, as you will be tested this next week to make a decision.

Ford closed at $2.19 on strong volume, but also closed Friday with a Doji candlestick pattern. It is up $0.30/share from my purchase or 15.8%. Apple closed at $95.93 also with a Doji pattern and is up over $12/share from my purchase or 14.5%.

The ETF's SSO and TNA recovered some of their devastating losses this past week. TNA closed at $15.07 also with a Doji Candlestick pattern. I had purchased TNA at $23.36 although I have added to my position with shares at $11.35/share to bring the average price down. SSO closed at $18.08 also with a Doji Candlestick pattern. I had purchased these shares at $21.57/share so I am underwater on both of these investments. But I still am holding them. My strategy will be that when I think the market is about to turn, I will purchase TZA to hedge the gains I have made back on TNA and SSO. My signal will be triggered by looking at the Volume as it will indicate the timing.

I don't know if this is too much detail for you on how I think about decisions regarding the stock market. Let me know by making a comment. I can post less and just tell you my conclusion or I can share the details of my decision making. The default position is this, if I don't receive comments, I will just post less details. Thanks for stopping by.

UPDATE: Monday Pre-Market

The Futures show the Indexes going up today, continuing the gains of last week. The Nikkei was up in overnight trading and the CAC, DAX and FTSE indexes in Europe. Last night on 60 Minutes, Fed Chairman Ben Bernanke gave the first ever interview on the program to explain the financial crisis and how the Fed stood ready to do whatever is necessary to maintain the Banking system. It was a very good interview and showed the man was from a small town and understood what it was like being from the Middle Class. He should be commended for taking this unprecedented step to help average Americans gain confidence in the government and the Financial system. This should be good news to the markets.