Monday, March 16, 2009

Technical Picture - Overbought

As noted in last night's post some retracement was expected early this week in the wake of last week's surge. The S&P carved out a shooting star reversal pattern at the 50% fib. retracement of the Feb. highs to the March lows, and the NAZ printed a bearish engulfing stick at resistance area. Further corrective trade is expected in the coming days.

The manner in which we correct is of utmost importance. A sharp, high volume retracement would be bearish. But if the retracement observes the R-zone as support and volume is contained, it will be positive for the bulls.

The markets opened the week with an extension of the four day win streak and the Dow/S&P were able to maintain the intraday uptrend into midday. Finance paced the way in early trade after gains overseas, encouraging remarks from the Fed Chair during a weekend interview on 60 Minutes, and rumors about the government possibly requesting delivery of stock certificates held by AIG and other TARP institutions, thus preventing short-sellers from borrowing the shares.

But, the Nasdaq faltered after a higher open and failed to confirm the S&P move to new highs. Then the XLF carved out a double top and rolled over with afternoon profit taking persisting into the close. The steady slide over the final few hours of trade ended the winning streak but losses were minimal.

Important to monitor economic data - housing starts, building permits, and PPI tomorrow in pre-market. FOMC - FED interest rates on Wednesday.

OPEX (options expiration) is on Friday. Open interest sometimes moves from one extreme to the other during OPEX week. Also, things start to get a little choppy Wed. and Thurs. prior to OPEX.

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