Investing Systems Research Lab Blog for Week of August 2nd, 2010

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Last week started off ok with a small upmove in the S&P, but then the gap up Tuesday and lower close formed a pivot high, which was confirmed Wednesday. All in all it was fairly choppy trading and as we pointed out last week, the resistance at the 200-day moving average is likely to provide a ton of overhead resistance.

On the monthly chart of SPY we see that we did not get a close 1% above the 10-month moving average, so the long-term timing model is still on a sell. We suggest the indexed equity portion on a diversified buy and hold portfolio should remain on the sidelines. Unless we can decisively break above the 10-month, the 30-week and the 200-day moving averages, the bias will most likely be to the downside. We may get a “beginning of the month” push up, but that is likely to fade later in the week. Typically we would expect August to be low volume and fairly boring, but this has been an atypical environment.

Notice we traded last week again at the infamous 1111 level. The S&P has traded at 1111 38 weeks out of the last 12 years, so the question is do we take the “over or under” here?

Last week we marked a likely trading range for the SPY and the weekly bar was almost entirely contained in that zone.

Below you see what we think the likely trading range is for next week.

Notice the 30-week moving average is acting as overhead resistance just as the 10-month is above.

Zooming into the daily chart we see how the 200-day is looming overhead. The market is squeezed between the 20 and 50-day and the 200-day so it should be interesting to see which gives first.

I drew a horizontal green line at the point of major resistance and we are going to have to get through that eventually for the rally to continue.

Going into the first trading week of August we are likely to see the market trade sideways to down. Even though earnings season has been quite positive so far, the fear is that that going forward, growth is likely to slow. This was confirmed by the fairly weak GDP number Friday.

Since it’s a market of stocks, we did see some amazing gains in individual names last week, but all the sectors look pretty weak and honestly we are having trouble finding a lot of good set-ups for the short-term, other than daytrades. Many of the “market leaders” (tech) got crushed last week and that makes us nervous. We are going to have to keep a close eye for the next leading sector to emerge.

Here are a few charts that look ok and have potential.

We saved RIMM for last as I wanted to comment on it. RIMM was a pick on July 9th, and we discussed it a bit on the show. The consensus was that RIMM has likely bottomed and had potential.

After a bit of a follow-through, it consolidated for a couple weeks and is now beginning to break above the consolidation are shown in the green box.

If the overall market and tech in general is weak next week, it may drop back into the box and consolidate some more, but we like RIMM here and think it has a good chance of moving into the 60′s.

Have a great weekend and join us Monday morning in the Research Lab as we mark up the picks in real-time.

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Jul

24

Investing Systems Research Lab Blog for Week of July 26th, 2010

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The market demonstrated amazing resilience last week and took out the resistance at 1100 and closed above the 50-day moving average on the heels of “better than expected” earnings releases from a multitude of companies.

Call me skeptical, but this rally took a lot of people off guard and forced a lot of short covering. While we may carry through a bit into next week I would be surprised if we continued up past the 200-day moving average on the SPY. The 200-day represents the next significant hurdle.

Below you see a chart of the SPY where I have marked next weeks likely trading range in yellow.

On the daily chart this area is shown in the green circle. As long as we hold above the ‘now broken’ trendline, the market is pretty constructive, however it would not surprise me at all to end next week with a red weekly candle at the bottom of the range shown above and perhaps right on the trendline.