Bounce higher to punish the bears?

  • Posted on: January 26, 2010

I like looking to be long the Dow and S&P going into and right after the State of the Union address. Everyone I know is looking for a negative reaction to the Speech. It seems that lately, every time the President speaks, its a free put option on the markets. I think this speech may be a buy the rumor, sell the fact opportunity. You can’t go wrong fading popular opinion, and the popular opinion has/or is shifting away from the hugely favorable ratings President Obama had enjoyed for the first year of his Presidency. I think it may be a matter of time before CNN gets “fair and balance” lol. Did anyone notice that Air America, the supposed axis to Rush Limbaugh, Inc, quietly went off the air? Perhaps someone should let George Soros know that the liberal voice of the airways has quietly shuffled its mortal coil.

That being said, I think as long as they leave Fed Chairman and The Treasury, alone, I really think we are due for a nice bounce higher. My own opinion is that that talk of replacing Treasury and Fed Chairmen was known by a few key insiders,and precipitated the recent mini correction. A move from the high in the cash Dow from 10,767 to the 10,150 level qualifies as a correction.
Going into this State of the Union speech, a speculative trade would be to use resting buy stops in order to get long on a surprise pop. Every one I know is bearish, and just a little too bearish for the time being. So, for a speculative trade, consider that recommendation.

I still think we need to go up and print 11,000, just to screw all the left over bears. There’s no way we got to a high print in the Dow Cash at 10,767…Are we really NOT going to go get those last 233 points? I just find that target too tempting. Time will tell, but I still think we have to go get that print before we get set up for a more significant correction.

On the charts, we have good support technically at 10,000 in the Dow Cash, 10,100in DJH, and 1080 in SPH. I would be a cautious bull here, obviously with sell stops below to protect against another flush.

Certainly there are enough surprises lurking out there, either politically or other wise, which would precipitate a flush, but technically we are at some good support levels. After all, we rallied for 9 months without a good correction. Looking at the chart of the S&P500 cash it looks very sustainable. That’s not to say that we couldn’t have a 10 percent correction. But I would think that that first flush down would be a buying opportunity, again, with sell stops below as protection.

There is a major long term trend line in March Soybeans which looks good as well. Roughly at the 930 level. I thought we would get there today, and we still should go down and test 934. A break below 930 would mean a test of the 921-913 support level. But I think you should pull up a long term daily chart of SH and draw the trend line. You will see there is a healthy one, extending all the way back to the low last March. Please look at it and be aware of its existence. A failure of that trend line would signal more long liquidation. That’s why its key that you look at it.

Corn is hanging tough. Last Friday we found another 3 million acres of corn. Like I said, we better start building ethanol plants along side the Starbucks of the world in order to soak up this huge supply. And who knows how many more bushels are going to “materialize” before the March USDA number. The corn looks vulnerable to a flush. Period. Look for the 350 strike to attract a lot of business, as well as the 325 strike price. At that point, we will have corrected a dollar, and that should be enough to squeeze out the remaining weak longs, just about the time we start hearing about how wet the fields are this Spring. A similar scenario to last year’s action.

In the Wheat, we still have bearish fundamental factors. There is just too much supply. The best thing the US farmer could do would be to finally blow out of their stored bushels, so the market could find real support. It doesn’t look like we’re near that point, however.
Six months ago, we were at 7.50. Between those June highs and the harvest lows in September, we broke over 2.80 , down to the 4.60 level. Followed by a 1.50 cent rally to the November highs around 6.00. That was 2 months ago, during which time we broke over a dollar, but have briefly stabilized at the 5.00 level.
Honestly, the wheat market is looking a bit bi-polar.
Until we get a handle on the dollar picture, as well as the amount of new supply coming on line over the next 3 months, the picture looks just nasty.
Basically we are in a 6-month, 1.20 cent choppy sideways trade. When we break out, it should be spectacular.

I almost forgot, I like the metals for a bounce higher here. Technically, we seem to have found support in the gold at 1080, with resistance at 1140. In the silver, there is good support at 16.80 with resistance at 18.15. I really think the silver looks like it has built a bit of a base here.

As always, make your own trading decisions, use stops, and be disciplined. Failure to do so is detrimental to your pocket book and your psyche.

Good Trading