Monday June 21st Stock Market outlook (with Updates)

They say big news is driving the markets around the world today and that is China's currency move, the Yuan. It has been allowed to move and it means a short rally in stocks. However, it means the Dollar will be hit again and it will cost more for the US to pay its debt.

Merideth Whitney was on CNBC earlier this morning and stated unequivocally that the Housing market is in for a double dip down. She said she sees the 2nd half of the year as trouble for earnings and markets and the beginning of another leg down in housing prices. She said there are a lot of rotting assets on Bank books too and that Banks have tightened credit availability for Consumers. Not a good thing for Small Businesses.

So I see a short Rally ensuing today and approaching the earlier high target I had set for the Dow at 10,600. That will form the right shoulder of the "W" pattern in this 1 year Dow Chart. Then we will head down again, as you notice that the "W" pattern is slanted down on this chart. It turns out that 10,600 is where the Dow 50 day Moving average crosses the axis. This next drop should coincide with the earnings season which starts around July 12th with Alcoa. Please notice that with the exception of Friday's Volume of Options Expiration day, the volume in this rally up has been at the expense of lower volume than the drop to the low. Low Volume and rising prices are very bearish so don't get caught up in the hype this is the time to get back into the market. I don't believe a word of it.

I will not sell my shorts, but instead add to my positions at these cheaper prices. Stay calm and be patient is my motto, as nothing has really changed in the world to be optimistic about. The currency move by China prevented a Trade war which was brewing because Congress was playing tough on the issue with much antagonistic language towards China. I will update this post as the day unfolds so come back.

Update: 9:30am PST

As you can see from the chart above, the market had a nice open and then has been sliding continually. As I have shown with the Red line under the latest "W" pattern, it is sloping down and therefore the market will continue down until another new pattern emerges. I hope you took some profits this morning as the Dow has hit a high today of 10,594, which is pretty close to my Dow 10,600 prediction. We are going to test the previous resistance levels which is at 10,512. So as the market drops down to this level we will see if it holds or goes lower. The next level the market will go to will be to test the lower level of 10,481, if we don't hold at 10,512.

Update 1:10pm PST

The Dow did drop as predicted and the market closed negative in all 3 indexes, the Dow, S&P 500 and the Nasdaq. Hope you took profits early in the day as I recommended earlier. Also it was a great time to buy more TZA Calls and Puts on selective stocks. The Dow finished at 10,442 clearly breaking below previous Resistance levels and is now around the Pivot Point of 10,452. Support is at 10,422 and S2 is at 10,393 so watch these levels the next day or two.,

In trying to decide what to do each day, I keep in mind that the mood of investors is bearish, not bullish and the charts reinforce this view as I have shown on earlier posts. From a long term perspective, we are forming the right shoulder of a Head and Shoulder pattern, or "W" pattern as I like to call them for short, which is 30 years in the making. See previous posts showing this chart of the Dow and make up your own mind. See you here tomorrow!