Weekly Market Review: April 14, 2009

I'm back from my long weekend. S&P 500 has broken above 850 and tested 860 on Monday while I was away.

On Monday, we made a failed attempt to rush through 860. A similar scenario happened at 830 and 840 in the past 2 weeks. Each time, the market dipped slightly but managed to climb even further up (Figure 1). Would history repeat itself the third time?

The 10 day MA for S&P500 (SPY) has stayed above the 40 day MA since March 26 now. That's more than 2 weeks of run. This hasn't happened since Sept 2008, and even then it wasn't that long. This is definitely the longest up run we've had since 2006!

On the other hand, the indicators are looking as toppy as ever (Figure 1). In addition, the down trend as shown in Figure 2 is still intact, and this decreasing volume rally can only confirm it.

In the intermediate term, I'm still bearish. Yet, I must admit that this run has been pumping up and up for a lot longer than I expected. As a trader, the most easiest way to make money is to go with the flow. As of now, the flow of the market is up, unless proven otherwise. So my strategy now is to wait and observe the retracement before rebalancing my positions, if needed. I'm net short since last week.

Some key intermediate term levels for the S&P 500 are: 38% Fibonacci at 790, 40 day MA at 780, 200 day MA still high above at 970 or so.

[caption id="attachment_1237" align="aligncenter" width="500" caption="S&P 500"]S&P 500[/caption]

[caption id="attachment_1238" align="aligncenter" width="500" caption="S&P 500"]S&P 500[/caption]

GICS Sector Review

From the 6 months chart, we can see that the Financials (XLF) is fast approaching the support from December of 2008. The V-shaped bounce has been fierce particularly for XLF.

This XLF bounce is even more evident in the 1 month and 5 days charts. It's common knowledge that this type of climb up is hardly sustainable. Thus, everyone is watching the Financials as usual for any signs of weakness. And if that happens, the market can quickly turn ugly. However, the inevitable retracement doesn't have to be deep. It could very well dip, consolidate, and rocket up again.

Given the longer term perspective of the market as described in the first section, I doubt that though. In any case, just watch the Financials as an indicator.

[caption id="attachment_1234" align="aligncenter" width="500" caption="6 months: XLE XLB XLI XLY XLP XLV XLF XLK IYZ XLU"]6 months:
XLE XLB XLI XLY XLP XLV XLF XLK IYZ XLU[/caption]

[caption id="attachment_1235" align="aligncenter" width="500" caption="1 month: XLE XLB XLI XLY XLP XLV XLF XLK IYZ XLU"]1 month:
XLE XLB XLI XLY XLP XLV XLF XLK IYZ XLU[/caption]

[caption id="attachment_1236" align="aligncenter" width="500" caption="5 days: XLE XLB XLI XLY XLP XLV XLF XLK IYZ XLU"]5 days: XLE
XLB XLI XLY XLP XLV XLF XLK IYZ XLU[/caption]