I hope everyone is having an excellent weekend! Everything looks to be moving along just fine in the markets, so I have no new technical forecasts for you. If we take a look at a daily 4 month chart of the S&P 500 I think it’s fair to say that the inverted head and shoulders pattern has been confirmed. In hindsight, this pattern did infact trigger at 1360 making it much more probable for the markets to break the key 1400 resistance. After breaking the neckline, traders started to panic to cover their short positions. Pressure was put on the short sellers once again as the S&P broke 1400. Now in the daily time frame, the bulls have the upperhand. With Microsoft abandoning the Yahoo bid over the weekend we may see a pullback on Monday. A negative day would be a healthy one for the markets as long as we don`t close below 1400. A pullback would be an opportunity to go long as we prepare to test the MA(200) at 1440.

Technically there is nothing more to report. If we get a pullback, which we might not because the futures are still showing strength, I will post a watchlist of stocks ready to breakout. To generate some much needed discussion on this site, I will likely post it as a comment under this article. Please do the same if you have stocks you like and feel strongly about.

Things are looking bullish right now, but there are still many unanswered questions as we head into the summer. These questions are ones to think about as we approach the 200 day moving average.

How much impact will the U.S. rebate checks have? Answer: I think people are more inclined to pay off their debts than go on a shopping spree…why celebrate when everyone is talking about a “recession”.

So are we in a recession? Answer: Many people are under the impression that we have bottomed and this is simply a slowdown. As mentioned in my previous posts, I am expecting a long leg down, so yes, we are in a recession and I think this recession will be longer than expected. This market is still overvalued and needs to correct.

But jobs and other economic data aren`t as bad as we expected. Answer to comment: A prolonged bear market and weakness in the job market is likely. Our latest job and economic data is simply lagging as usual. Maybe someone can answer this question for me…did the unemployment rate for April take into account that graduates just joined the work force? Would this skew the number upward hence the “unexcepted” smaller decline?

What will happen in the summer? Will the Fed continue to cut interest rates? Answer: Hopefully not, cutting interest rates will simply make inflation worse. The Fed will most likely raise rates again during the summer. This is when the next leg down will be…with it, more loan defaults may flood the market. When this happens, Wallstreet will have to do much more to forget we are still in a correction period.

So again, here`s my strategy for the week…if we close below 1400 I will short the markets, if we get a pullback I will buy if opportunities arise. I`m sure many of you may have other opinions in regards to the questions listed above, if so please comment and share your thoughts below

Richard
richard@hedgeagainstspeculation.com