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Week Ahead 1-25-2010

Week Ahead
Jan. 25, 2010

Volatility…I have talked about it in many ways over the past several weeks: blatantly saying that it was a buy. In our classes on Wednesday and Thursday we stated that if the market fell below our support level of 10,270 we could easily see a pop up above the 25 level on the VIX. It seems that a lot of our longer term trend lines have been broken. Our shorter term price consolidation has shown us the true breakdown, first breaking the upward sloping trend line and now confirming through the break below the 10300. Does this mean it’s all over? Hardly! Earnings have been pretty solid. It seems the public has been punishing companies that beat, but not by enough. Google is a prime example. I guess the owners selling 5million shares each over the next couple of years doesn’t help.

So what is the next move… a very tough one to forecast. Taking profits is our first rule and several down days are sure to have a reversal day to shake the weak hands out. We talked about retailers like SHLD, COST, TIF and RTH in Wednesday’s trade labs. Volatilities were cheap and the retailers along with the markets fell off. SHLD was off roughly $4 since Wednesday close. TIF broke support and fell through our first target of $41.74 and is poised to test our second target of $40. Costco(COST) also fell through support and closed on the low, but has not fallen in correlation with the market. If the market is off slightly on Monday and COST is not, then this may be a one of the first stocks to reverse, so be prepared. RTH fell through support, but has held up pretty well. Walmart(WMT) layed off 11k people of their Sam’s Club division, but we were told that it was “all good!” SZK the ultrashort ETF we pointed out in Wednesday’s class is up $2 since we talked. Huge volume points out the major bottom that this ETF has potentially put in. These quick moves are getting frothy and one has to expect a pullback.

Oil was another spot where we expected negative movement. The excess inventory and recent pops in the Oil price did not seem to logically work out for us. In Wednesday’s Trade Lab class were talking about targets in OIH of $122 from the closing price of $128.7. Once we broke our confirmation low in OIH of $127.11 we put our first target at the high at the end of December right around $122. That number was broken in Friday’s selloff. Our next target would be $118.81 but we expect a pullback from this sharp selloff. If there is a reversal, then volatility may settle in a little bit and may be worth purchasing for the next few crazy weeks ahead!

Gold and silver have also taken a beating with the Dollar rally. We know that JPM is profiting nicely from the drop in the Silver markets. The main question will be if they can hold their December lows. Big picture economics tells us that we want to be long Gold, but short term traders are going to wait until we feel that it has bottomed. Volume coming in on support of the Dec. lows may we worth a small gamble with tight stops to get out if the lows are violated.

We have broken some major trend lines, but the bull forces will most likely come back this week with the earnings schedule. Housing will most likely fall and this could put some more bearish pressure on the overall market. Fib retracements for 23% is at $97.15, 38% is $91 and 50% is $86. If we do get a bounce it may be time to lighten the load on some of the longer term bullish positions. This long term trend break shows us there will be higher volatility and more uncertainty in the markets especially over the next few weeks with earnings. Volatility has moved up and if the market rallies back into the consolidation should settle down and may be worth dabbling for the right price.

We are having our weekly webinar class on Tuesday Jan. 26th 1PM eastern this week. Look for the email or log in to the site for the link and password.

It is going to be a crazy week with earnings and more economic news.

Thanks
Ryan Mastro

Economic

Earnings