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MARKET DIRECTION CALLS
August 2 2011 - Selling Intensifies
August 1 2011 - Bear Returns
July 28 2011 - Before The Open
July 27 2011 - Down But Are We Out?
July 20 2011 - Stock Market Volatility
July 18 2011 - Investors' Nervousness
July 15 2011 - Earnings VS Bleak Data
July 14 2011 - Below 1310
July 13 2011 - Ugly Looking Chart
July 12 2011 - Razor's Edge
July 8 2011 - Nasdaq Leads The Way
July 5 2011 - Expected Weakness
July 1 2011 - Overbought
Jun 28 2011 - July Rally?
Jun 27 2011 - Mixed Signals 
Jun 21 2011 - Bottom Or Bounce?
Jun 16 2011 - Raising Cash
Jun 15 2011 - More Downside To Come?
Jun 14 2011 - Bounce or Bottom?
Jun 12 2011 - Batten Down The Hatches
Jun 6 2011 - Bounce Sometime Soon?
Jun 2 2011 - Sell Signals and Warnings Everywhere
Jun 1 2011 - How Bad Could The Selling Get
Jun 1 2011 - Tread Carefully - Markets Remains Overvalued
May 31 2011 - Success - 100 Day Moving Average Tested
May 17 2011 - Be Careful Out There
Apri 18 2011 - Two Bears Compared
Apr 13 2011 - Why I Bought Puts Today
Apr 4 2011 - Breaking The February Highs
Mar 16 2011 - The Art Of Being Wrong
Mar 15 2011 - Market Remains Resilient
Mar 11 2011 - Trend Is Down
Feb 25 2011 - Trend Turning Bearish
Feb 11 2011 - Still Up - But Watch For June
Jan 3 2011 - Trend Remains Positive

 

Market Direction Call S&P 500


July 8 2011 - Nasdaq Leads The Way

 

Next Week Could Be Crucial

Friday the market was shocked by the unemployment news. I don't think anyone expected such bad numbers. Instead Canada actually created more jobs than the United States. Considering that the "rumor" was that the numbers would be over 100,000 newly employed, the market actually held up pretty well.  Still though, there is no other word for it - shocker!

The market opened down and proceeded to fall until around 11:15 AM and then the pullback seemed to run out of steam. Why was that? Could it be the rumor that Alcoa Inc. (AA) earnings will be better than expected. Those earnings come out Monday.

 

In the chart below you can see the action. The market rebounded and kept grinding higher and surprisingly there was no selling into the close. So what does all this tell us?

S&P 500 - July 8 2011

Well one thing is for certain, there is strength in the market. The recent run up in stocks was no fluke, but actual investors buying back into stocks. They were in treasuries  as they worried about the Greek Debt Crisis and then they moved quickly back into stocks when the Greek debt crisis looked like it was being kicked down the road.

It's important to understand that while buy and hold investors don't normally worry about day to day swings in the markets, hedge funds, institutional managers, mutual fund managers, pension managers, and traders do watch the market. They want to be in on any rise and out before any fall. The selling on Friday morning was muted which tells me that the bull remains in charge for now.

On Thursday the NASDAQ moved within "inches" of reaching the all time high of 2007. It is the only US index to do so.

NASDAQ - 2007 chart

Below you can see the NASDAQ high back in October 2007. From there the market sold off, it made two tops which you can see and then commenced moving lower as the bear market took a bigger hold of stocks in general.

Nasdaq Chart showing 2007 Market High

Thursday's move though to within reach of setting a new high for the past 10 years is important. The NASDAQ led the market recovery after the disastrous crash in 2008 and 2009. On Friday the XLF pulled back again BUT it is still above $15.00. The reason the market is so worried about the financials is because as you can see from the 5 year chart, $15.00 is sort of the line in the sand. If the financials collapse below $15.00 and stay there, it could spell the end to the bull market. Sure the market could rally for a bit longer, but if the financials fall below $15.00 and move even lower, then it is just a matter of weeks before the market will pull back seriously.

XLF Index - Chart from 2008 to 2011

So while the financials have not helped out the market much, it hasn't really mattered as it has been the NASDAQ that has lead the recovery rally, every step of the way. You can see this in the chart below where I have tried to superimpose the S&P 500 on the NASDAQ chart.. Therefore it is important to keep watching the NASDAQ. I believe wherever the NASDAQ goes, the S&P 500 will follow.

Nasdaq and S&P500

Next week therefore is crucial. If the earnings season shows decent earnings and once again companies manage to beat analysts earnings projection, I believe the July Rally will remain intact. That doesn't mean to say the market will shoot up this week. I actually kind of doubt that. What I do think though is the market will not sell off. It will probably be weak but with no real concerns of any major downturn. If though earnings do not beat expectations, starting on Monday with Alcoa, then the market could be in for some summer heat over the remainder of July - pardon the pun.

Remember these market direction calls are all "best guess". I do not believe anyone knows for certain what direction the market may take and as was just witnessed at the end of June, a market that looked like it was really going to get nasty, turned right around and made one of the best rallies of the past few decades. For me though, I plan to keep a watchful eye on the NASDAQ..

 
 

 
 

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