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

The market finished off a nice week and is looking at more earning reports in the coming week. With the financials bouncing solidly, the market showed some good signals of finding the bottom:

SPX added +0.36 points to close at 1260.68. It closed above its 10-day MA. The 10-day MA flattened. The MACD went higher.

Nasdaq lost 29.52 points to close at 2282.78. It closed just below its 20-day MA. The 10-day MA turned higher. Its MACD climbed up.

The market has made bullish crossovers on MACD in the major market indices. The 10-day MAs are turning up. VIX went above 30 last week and has since come all the way down to 24. It will be good to see VIX stick between 23-24, and then perhaps slide lower. The financials seem strong. For example, even though MER reported earnings below the estimates last Friday, it managed to close green. For the new week, as long as the financial sector continues to recover to the upside, the overall market should do the same. On this initial bounce, it would be good to see the market go at least above the daily MAs. For SPX, it will be about 1300; and Nasdaq, about 2350. The 30-day MAs could be the resistances to watch. Money has been rotating and will likely continue to do so. It seems that money is rotating out of commodities and into financials and techs. Gold, however, seems to be holding up well. Among the technology stocks, the biotechs continue to be strong and the semiconductors are beoming more interesting. Let’s take a look at some of these sectors.

Sector Watch
XLF (financials)
XLF closed above $20 last week and touched its 30-day MA! Its 10-day MA has turned higher. The 30-day MA is at about $21. Going above the $21, the next resistance is at $23. So, the financials could have some more distances to go up before taking a breather. GS and MA have been really strong and could be good indicators to watch for the whole sector. FNM and FRE have captured everyone’s attention and have been recovering well. FNM traded as low as $6.68 last week and close at $13.4, a 100% retracement from the bottom!

USO (oil)
USO has come down from nearly $120 to now $104.44. It is on its daily lower BB and could easily ride it lower. Its 10-day MA has also turned down. There could be some support between $100-$102.5. We have crude inventory report on Wednesday. So, we could see USO flatten a bit below $105 until we know what the inventories are like. Of course, geopolitical factors could also affect the oil prices.

GLD (gold)
GLD has hung on well, staying above $94. Its daily chart is still holding a bullish formation with 10-day MA coinciding with $94 to form a support. Any signs of weakness in the equities market could drive GLD higher. SLV (silver) is also something to keep an eye on. Although presently not as strong as GLD, SLV does move in sync with it.

SOX (semiconductors)
SOX closed above its 20-day MA last week and the 10-day MA turned up. If SOX breaks above 370, it could go to 400 before finding substantial resistance. This brings my attention to the top holdings in SMH. TXN and AMAT together account for more than 1/3 of SMH holdings. TXN reports earnings on Monday and BRCM reports on Tuesday. ALTR recently announced great earnings, beating the estimates by +18.5%. ALTR shares jumped from $19 to $21.5. I think there could be some good longer-term plays here in the semiconductors.

Good night and HappyTrading! ™

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