Weekly Market Outlook

So here we are. The wonderful and quiet month of August. Over the past few years, this month has brought volatility. During bear markets it seems to be the time of the year for the bears to take it to the bulls - perhaps the bulls go on vacation and there figures to be little resistance as a result. Anyhow, personally I am not a fan of this month. The market this time of the year has a memory of less than 24 hours so if news flow is all over the place, so is the market. Trends do not exist unless one theme is so overwhelming that it cannot be ignored (frozen credit markets last fall would be one) making August completely unpredictable and thus, a month I normally like to avoid. Now with that said, it does not mean I should duck and cover so here is a quick analysis for the upcoming week.

Last week I indicated that while the bear controlled things, there was some glimmer of hope in the NDX. As you recall, I mentioned that if the NDX 100 could retake the 1890 level, things would improve dramatically across the landscape. In addition, I said that if the SPX could reclaim 1275, then the 1300-1320 area was next. I was pretty confident about that. What happened? The bears took my calls and essentially drove them down my throat. So what's next?

Well for the leader, the NDX, the failure to close the 1850 level has opened up the more realistic possibility that we challenge 1750 next. The only caveat emptor to so speak to this sits in two metrics I use. First the level of stocks over my power MA still sits in an upward trend. Also the money flow numbers are still supportive. Conversely, my power model is bearish at the moment and the 65 week confirmed that trend this past week. Given this information, I think if this market can hold itself up through midweek, then a challenge of the 1850 level and then the 65 week is possible. If the sellers come out aggressive, 1750 here we come.

As for the other big index, the S&P 500 1275 remains a formidable challenge. Essentially it as support and now has become major resistance. Sure we traded above it each of the past few weeks but we have not been able to CLOSE above it by the end of the week. This continued failure raises the distinct possibility that a challenge of 1200 is possible. The doji candles of the past few weeks are not helping things either. The power model is down here as well and the power MA is bearish. On a positive note, money flow looks oversold or near it. Also, my stochastics model that I use to go long stocks or short in a given time period argues for upside - barely.

So bottom line here I think is simple. If this market can get started on the right foot early in the week, then the upside resistance levels could be taken out as the shorts will run for the exits. Conversely, any hesitation for the bulls will be taken as a weakness and the shorts will come out swinging.

Good luck trading

PS I do not have a position at the moment on the futures side. The signals for August are generally erratic though I will be employing one of my signals (of the many). At this point though, I am not getting an indication which way that trade will occur from.