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Market Awaits Fed Meeting

Author: Varun Kanotra (info)
Website: http://www.targetsix.com/
Posted: December 10th, 2006 at 11:33 pm EST
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Next week is going to be crucial in telling market direction with the Fed meeting on Tuesday, and also retail sales on Wednesday. The S&P is sitting around the lower end of the uptrending channel that it has been since July. If bad news hits the street next week regarding the economy or mis-intrepretation of Bernanke’s speech, we could see a breach of the trendline causing some selling. However, it is easier for the market to continue its current path of pushing higher. Remember, the trend is your friend, until the end! Where will this trend end? Nobody knows. That’s why the “smart” traders are market followers and don’t try to outsmart the market by trying to pick tops and bottoms.

Let’s look at the SPX so see what I’ve talked about above:

Notice that on the daily chart, SPX is still comfortably within the upward trending channel. No reason to change opinion until there is a pattern break i.e. SPX closes outside the lower trend-line.

Here’s a longer term view of the SPX (5 year weekly chart):

On the weekly chart, we made a positive close after two relatively flat weeks of trading. Again, we are comfortably within the upward trending channel on the weekly charts as well. So no reason (technicall speaking) to change stance to bearish.

Here’s the DOW (1 yr daily chart):

Notice how the DOW paints a different picture. It broke the trendline and retraced back using the trendline as resistance now.

Here’s the 5 year chart:

Notice how the DOW closed below the upward trending channel for the week. This is why next week is important.

NASDAQ

The Nasdaq came close to breaking the lower part of the channel but did not. Also, the 5 year chart looks to be within the channel, so no signs here for any kind of reversal. Notice how except for the DOW, the SPX and NASDAQ are positioned to move higher whereas the DOW is adding confusion to the mix. Will the DOW end up leading a break-down and bring the rest of the market down? Or will the other two indices pull the DOW back into the channel? It’s a tough one to crack. Again, next week should give us some more information and provide direction.

TRADES:

BIDU has had a great run since it broke out of the channel. The weekly chart below shows how powerful a change of trend can be. I like the chart!

Apple (5 yr chart below) is at an important juncture here. The stock is sitting close to its 30 day exponential moving average. We could either get a bounce next week or a break-down. Keep this one on your watch list to find a good entry.

Google (1 yr chart) has been consolidating around its 30 ema and seems to have formed quite a strong support area where its at right now. Although, I am quite optimistic at Google’s performance this quarter, I will continue to study the technicals to give me entry signals. A break below 480 should be a good entry for a short position. For a long position, a close around 492-495 area provide a low risk entry zone.

Investools (5 yr chart below) is testing prior resistance. A break through that should take the stock into all-time highs. This cheap stock is a nice candidate to be on the watchlist and could provide a long entry soon.

OIH (5 yr chart below) is testing resistance right now. I like the long term trend of this ETF. A break out above the immediate resistance should help make higher highs. A nice candidate to be on the watchlist.

Here’s a look at the 5 year chart as well:

PCU is near all-time highs. I like this stock a lot. Look at the trend.

RIMM broke down below the trend-line. Short this sucker! Two primary reasons why I think this stock is a short candidate: 1. It closed below its 30 ema and 2. It broke down form its upward trending channel. I will change my opinion if the stock shows strength and climbs back into the channel.

SNDK is another great stock for a short. There is still room for this one to go.

US Steel keeps making higher highs. Its at all-time highs. I like this stock as a long position.

Trade carefully next week as there could be a lot of chop in the market due to news events. However, by the time the week is over, we should have a better idea of longer term direction. I would love nothing but to get a short signal next week! We will see what happens.

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