Run Forrest, RUN!!!

Market action during last week was fast and furious, with major gaps to the upside likely due to short covering, Human and HFT (computer) trading. But, as you might recall from a previous post, the retail investor is heading for the safety of bonds and cash in a big way and market volume remains light. But the S&P closed above 1100, which was an important level of resistance that stood in its way and that cannot be ignored.

But the importance of this is that the market is attempting to nullify the Head & Shoulders formation, by creating an INVERSE Head & Shoulders, which could drive the S&P and DOW to break through the April, 2010 highs. It's also possible that, in a best scenario, it puts the markets into a wide trading range, similar to what has been seen in Japan, or during the '70's.

Now, Christian at PSA is warning Bulls not to believe this rally. But since I'm a day and short-term swing trader, we cannot ignore such a rally, which could take us up 600 Dow points from here. I'll confess I felt considerable pain in my TZA position before finally throwing in the towel and taking my licks.. Now I'm looking for direction and "hit and run" opportunities.

Christian brings up extremely valid points regarding the European "stress test", which I believe was financial "propaganda" to divert attention from the potential for sovereign debt default. But good propaganda is good propaganda and can mask the facts for awhile. He also mentioned North Korea, which has ALWAYS been a problem that could erupt at any minute. But those are bearish arguments that won't impact the markets until they impact the market.. ;0) And in between, being short this market is going to negatively impact your trading account.... lol!!

We're also entering a Full Moon phase, for those who follow the Moon Phase Trading System (MPTS) , and that has often led to market turns. In fact, this major rally BEGAN back on June, 26th, during the last Full Moon. You'll notice also in that link that the VIX is under massive pressure, now falling under it's 200 Day MA. And since the VIX is a strong INVERSE indicator of market direction (the lower the VIX, the stronger the markets), until we see it get back above the 200 DMA, this market is going to get stronger.

Bears BEWARE!!

But the KEY INDICATOR I think we need to watch is the S&P 100 Week MA. 1100 put the S&P 500 above that 100 Week MA and that's SIGNIFICANT. If the S&P can manage to drag that 100 WMA back above the 200 Week MA at 1150, it's "game over" for the bear case for a couple of months. Another indicator is that the Russell 2000 (RUT) has already achieved this (which is why I probably felt so much pain last week.. ;0) (insert RUT in that chart link).

Right now I'm starting to get less bearish in the face of extraordinary manipulation that is clearly going on in the markets from the High Frequency Trading platforms. I don't believe we're going to get much good economic news in coming months, but a savvy trader learns over time that "the market is always right", especially when money is involved.. ;0) The trend is your friend and that trend seems to be getting even more bullish and the shorts are getting scared.

How long will this trend last? It might end at 1150 on the S&P, which could prove to be a key reversal point. And that's why I included discussion of the RUT. If the small cap Russell 2000 can break that 100 WMA resistance, it stands to reason that the DOW and S&P will do the same.

Bear Case

Edit: I'll be accumulating some stuff to support the bear case. Right now it primarily revolves around the FOREX market response to the European "stress test". Bloomberg is reporting that the Euro is falling in response to lack of confidence that the tests were stringent enough. This is an argument, I might add, has a lot of credibility since they didn't count sovereign debt held to maturity, much of it from the PIIGS (Portugal, Italy, Ireland, Greece, and Spain). The whole purpose of the stress test was to put to rest the opinion that some of these PIIGS might be at a point where they will need to default on their debt because they lack the economic growth to pay for it.

So how does a falling Euro affect the US? Cheaper Euro, Stronger Dollar.. they can sell more stuff to us than we can to them and that impacts US export profits. And as we saw from the previous crisis in the Euro, it led to global market sell-offs, so it's an "event risk" that can't be ignored and which could QUICKLY derail the bullish scenarios I mentioned above.

Euro falls on stress test concerns

And for those who watch the stars, supposedly Aug 1st will result in the "Cardinal Climax", which is series of 5 planet alignments that is apparently very rare.

And don't scoff!! There are a large number of market technicians who use Moon Phase Trading Systems and planetary alignments to confirm other indicators. And since stock market is based upon "herd mentality", if people believe something will come to pass (like that H&S formation I keep referring to), then it will. If you doubt the veracity of this, think about the origin of the word "Lunacy".. Yep.. it came from the observed propensity of people to act strangely during a full moon.

More on "Cardinal Climax"

That's all I have for now.. I may add/edit this post later this weekend.

Scrutinizer