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Market Forecast + Sector Watch: SPX, Nasdaq, XLF, USO, OIH XME, GLD

Last weekend, I said,
Both indices are now in their bearish phase. SPX is on its daily lower BB and could test 1300 from here. Although Nasdaq was able to hold 2400, it may have some downward momentum on it’s side still. Below 2400, Nasdaq has a stronger support at 2350. VIX tested 23 on Friday, but, closed below. However, breaking 23 may allow it to pop much higher, which will not be good for the market. Even though we have been seeing pockets of strength (agriculture and coals, for instance), the overall market is showing many weak signs. So, for the new week, I still think it’s safe to play things lightly and keep lots of cash. Wednesday is the FOMC meeting, which could be a big influence on the market. I don’t think the Feds are likely to change the rates this time, which, depending on the language that they choose to use, could be a positive thing for the market. If the overall market is weak, techs seem more vulnerable. On the other hand, agriculture and coals took time to breath at the end of the week and may have created room to bounce up.”

The Fed left rates unchanged as expected and the market attempted to rally. But, on the same day, after the market, RIMM and ORCL disappointed investors with their forecasts and added selling pressure on the market. Both SPX and Nasdaq penetrated below their support levels and VIX closed above 23!

Let’s take a look at the market:
SPX lost 4.77 points to close at 1278.38, below the 1300 support. Its daily MAs and MACD went lower.

Nasdaq fell 5.74 points to close at 2315.73, below the 2325 support. Its daily MAS and MACD fell further.

Well, SPX is already at the March low. 1280 was the March support level. Although it seemed to be weaker these past couple of weeks, Nasdaq is doing better, and staying above 2300 is the key. VIX closed above 23 and is threatening to go higher from here. We have to be very careful right now with this market. For the new week (remember Friday is a holiday), if SPX shows strength and bounces above 1280, it would be encouraging. The overall market could bounce from here as it tests the March lows. We have to pay attention to VIX. Above 25, it will likely push the market lower. Gold was strong last week, as investors look for a safer place to keep their money. Oil reached a new all-time high. Coals and fertilizers bounced on Friday, which were likely due to end-of-the-quarter window dressing. Let’s take a look at the sectors:

Sector Watch
XLF (financials)
XLF has been on a continuing fall since last May! I’m looking at the 10-year monthly chart, and am “finally” seeing a support at $20! We’ve been saying all this time that for the market to find any sustainable strength, the financial sector needs to establish a bottom first. Let’s see how XLF deals with this support at $20 next week.

USO (oil)
USO had been stuck in a range of $107.5-$112.5. It broke above this range last week and recorded a new all-time high at $115.77!! It looks like it can go higher from here.

OIH (oil services)
OIH was quite volatile last week. However, it did make a new all-time high last Monday and is still showing a strong, bullish formation. Among its top holdings, WFT and HAL look like they are about to break out. NBR is also looking good. Of course, NOV, DO, RIG, and SLB are still among the favorites.

XME (metals and mining)
XME is also still showing a strong bullish formation with its daily MAs gliding higher. It bounced higher on Friday and closed above its 10-day MA. This bodes well for the coals and the steels. I like X and CLF for steel plays. Some of the coals are getting toppy again, although ACI, BTU, CNX, and MEE do still show room for higher grounds.

GLD (gold)
GLD seems like its on a new up-cycle right now. We started a long position in this, last week. Above $92, GLD could break out to test $100 again, which was touched in March when the overall equities market was weak. Other gold plays that I like include AEM, which jumped 13.9% last week, XAU (gold/silver index), ABX, and GDX (gold miners).

Good night and HappyTrading! ™

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