My Market Analysis for 12/01/2010

I just realized that I did not post my market analysis for the past week. We had an up signal on the first trading day and also first week of the year and I positioned myself with calls for the indexes and a few stocks for the whole week. However the current rally seems to be nearing exhaustion and we might finally be ready for a dip. I no longer think that the markets are in a retracement of a bear market as all 3 indexes had broken critical resistance, with the S&P breaking it strongly only last week. I would think that all market reversals to be temporary dips in an uptrend.

I also think that the markets had rallied too far too fast over the past few months with a dip. I’ll be expecting a market dip from next week onwards. However beginning from this Monday, we’ll be in earnings season and this would be an important factor in determining the direction of the markets.

I’m expecting the S&P 500 to reach around 1170 on the S&P by the end of the month. We might see a touch and go situation where the S&P will hit 1170 and then retrace strongly. This rally has shown signs of exhaustion for a long time, however it is still holding up due to the lack of bad news. Bad news during this earnings season would affect the S&P and the Dow very adversely.

As for crude, I just realized that there is a cup and handle pattern with 2 supporting fibo patterns indicating an uptrend so I’m changing my view from bearish to bullish. I believe it will be going through a few days of weakness before rallying to 96 by end May 2010.