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!

Pre-market Monday, Dec. 8th, 2008: Is the rally real?

Many of my friends don't believe the rally is for real. But many counter with the fact that the stock market is a leading indicator and usually 6 months ahead of the news. This weekend Congress, President-Elect Obama, along with the Bush Administration, have worked out some differences on a bailout for the Auto industry. Markets in Europe and Asia all had big rally's overnight and in the early hours. So it seems as though we are off to the races at the open, and you can expect a significant rally up about 300 points early in the day.

But again, is this enough to dispel the market overall fear? The answer to me is No! Most of us believe that more jobs are going to be lost going forward, more home foreclosures, tight credit and not much good news. So this rally is a relief rally based upon the worst news any could imagine from the bad jobs report last Friday, where 533,000 jobs were lost, behind us and no other news expected for a while.

So what to do. Well, first don't sell your Ford stock. Enjoy the ride today, as it will go up to $3.50 today for a nice gain. And because of the bailout, it will continue to $4 and above per share. If you believe as I do, that there will be a pullback eventually here and retest the lows, you are going to be given another opportunity to by the ETF Ultra Short fund, symbol SDS for around $83/share. If you buy this here you will most likely make a good return. So folks who believe we are in a Dow range between 7,300 and 9,500 will be looking to add to our Short positions using ETF Ultra Short funds. Yes, we may rally for a few days this week, but ask yourself this question, Are we going to have the worst of this financial crisis behind us 6 months out?

UPDATE 1:15pm PST.
I took my own advice today and purchased more shares of SDS, this time at $80.50/share with a limit order in for that price before I left for a client. The shares of SDS actually hit a low of $80.06 today. Ford closed up as well at $3.38/share after hitting $3.54 today, which was another lucky guess.