Can the Market Break Out to New Highs This Week?

Futures are slightly lower Monday morning, taking cues from overseas markets. A surprising China trade deficit and the wait for final approval of the Greek bailout have curtailed risk appetite slightly. Markets closed almost where they started last week, but again we saw some divergence with relatively strong and weak stocks.

There were lots of trades to be made. That was then, this is now. We are basically right around the broken accelerated uptrend spot in the SPX. Lots are trying to figure out if last Tuesday’s bottom was the “Correction”, and how to maneuver going forward.

At this point, the McClellan Oscillator that I talk about went from -78 on Tuesday to back above Neutral on Friday. So some digestion/horizontal action would be best in this area. The weekend news turned a bit away from Greece and focused back on the potential of China slowing and their trade deficit. We have Big Ben on the Tuesday, as well as some info regarding the Bank’s stress test due this week.

Overall if the SPX can maintain above 1358-1364 in the next few sessions, the highs of the year should be taken out pretty quickly. Work above the 10/20 moving averages could bring some more confidence back and make some shorts a little uncomfortable. Bigger support is 1348-1352.

QQQ: This ETF is back at 52-week highs, outperforming other sectors. The SMH, which was showing early signs of weakness last week, bounced from its 50-day moving average.

RTH: Retail continues to outperform as it broke out and extended above 52-week highs. Retail sales number for February comes out Tuesday pre-market

XLF: Coming up to the top end of the recent range. This ETF has had several sessions to consolidate- Will it be able to break out this week? This ETF is one of the heavily shorted positions in the NYSE. JPM and WFC remain strong. GS is holding up, participation from MS and BAC would be healthy. Bank of America has reached a deal for 200,000 households to reduce their mortgage balances. This is an example of how the most critical factor in repairing the damage done by the credit crisis of 2008 is time.

XHB/HGX: Broke out above a 3-4 week tight range. Broke to the lower end of the range early in the week but rebounded well, making the up move a little more powerful. TOL and LEN are outperforming in this sector. Credit Suisse upgraded several stocks in this group on Friday.

OIH: Basic Material stocks were hit the hardest last week. The OIH’s are definetly underperforming, most groups are on highs, or the top half of their yearly trading range, the OIH still hovers on the lower half of its trading range. It is off of lows and holding up, which is constructive

IWM: This group showed early weakness last week when it broke to the downside of its consolidation. The 50-day held as support of its snapback, question is, what’s next? Do you short the bounce or it just needed to pullback before going higher?

STOCKS

AAPL– has a nice upper wedge set up. Some sideways action would be nice up here. The longer it stays above $537-$542 the better the trade will set up for a move through $547.50-$548.50. Some news this morning that the new Ipad might take a few extra days. See how it handles it.

GOOG– got hit on Friday and remains sloppy. It engulfed a midlevel range and if you are short term, I would have thought to get stopped out on Friday- use that low as a pivot to trade against today $600. Under that is $593.

AMZN– still trying to maneuver this lower macro wedge. Stock is very sloppy and overall this pattern look bearish. It will probably be decided next quarter as the market will not tolerate another miss. For short term guys- watch $180-181 as support. This pattern won’t break to the downside until we get a close below $175-177

NFLX– has been working lower since the Outside day Feb 7th. The new pattern here is a Descending Channel that could get some action if we can get some volume and a close above $112-$113. I have not traded this one in a while.

LNKD– is trying to carve out a pretty positive “Cup and Handle Pattern”. It can get going if it can get above and close above $91-$93.

QCOM– still rewarding macro investors. Got a nice boost from AAPL investor day. I’m not trading it recently.

IBM– Stock still acts okay. It held above the 10day moving average and stayed above the $196 upper support area. It closed above $200 again Friday.

GLD– popped pretty hard of the $161-162 oversold support and now has some bigger resistance right in front of us. $167-$168 is will be a big area for the Bulls to take back. Watch it close.

I’m pretty light as this market still has more to prove to me. At this point you can make money both long and short based on the set up (example on Tuesday’s close was worth taking a short long LVS around $53.50 and then Friday taking it short $55.50). Guys not looking to carry positions can probably maneuver with this type of approach.

Macro Bulls still feel good. Momentum/trend traders can probably hold some of their favorite positions with some hedges.

Disclosures: Scott Redler is long BAC, DNKN, LNKD. Short SPY, LVS.

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