Tip your cap to Bernanke and friends. Truly an unbelievable rally this week. Five days of market upside and a gain on the S&P 500 of almost 6%. This was epic. Last Friday I called for a rally, but even I was surprised by the size of it. I figured somewhere in the realm of 300 points on the Dow Jones Industrial Average for the week. This rally took us over 600 points higher. Is it over yet? It may not be fully complete though the markets are EXTREMELY short term overbought.
I had talked about a rally for multiple reasons. First, the markets were on a gigantic trend line that started back in 2009, connected to the 2010 lows and as of last Friday, the markets were smacking into it. Next, Ben Bernanke and friends have made it a policy to rally the markets into a holiday weekend. Why? Because people spend much more money when the markets are in rally mode compared to when the markets are in free fall. Lastly, holiday volume always caters to the upside.
The SPY closed above the $132.00 resistance level today. That was a major resistance level. Keep in mind, it has not confirmed above that level yet. Another up day on Tuesday is needed for that. In addition, a new major resistance point is within reach. This is the pivot high from June 1st, 2011. That level on the SPY is $134.85. From the close of $133.92, it is less than $1.00 away.
Monday the markets are closed in observance of the July 4th holiday. Tuesday, if things stay quiet over the weekend, there will likely be very light volume in the markets. This may keep the markets neutral or possibly even higher. Should the markets get a reality check over the weekend with some news, we could see some sharp selling. Remember, Europe is open on Monday while U.S. markets are closed.
I do wonder if the upside today was due to new money flow into the markets for the third quarter. Whenever a new quarter begins, new money usually hits the markets. This can last for a day or two and may carry into early next week.
Current Open Trade Alerts
The UNG closed at $10.87 (See Trade Alert Here
). The triggered entry long was $10.80. I personally am not a big fan right now because the markets are extremely extended. If the markets pull back, chances are oil and natural gas may pull back as well. This is why a break even stop must be utilized. In addition, the daily chart looks like a possible bear flag formation. As long as a break even stop is used, no harm here. Should it pop, I think the upside is limited to $11.35.
MOTR triggered yesterday at $7.90 (See Trade Alert Here
). This is a pure chart play on this mid cap. The in spirit of bull flag continues to look ripe for a move higher. Today MOTR closed at $7.96. This should run next week. Once up nicely, a break even stop should be put into place and half should be taken off the table. The recent run was due to rumors of a buyout. While the rumors are most likely false, they will pop up again from time to time. Maintain the stop based on the alert.
I personally bought SDS yesterday when the SPY hit the $132.00 level. My entry was $20.70 (See Trade Alert Here
). That was the first master level of resistance on the chart. After such a gain in the markets, I figured the markets had a solid chance for a pull back. Today, that was obviously not the case and goes to show us that holiday action can cause a market to get short term inflated. In any case, let's use a stop based off the SPY. We will use a stop based off the SPY because SDS is a two time ETF that tracks the SPY. The stop will be if the SPY confirms above $134.90. Remember, for confirmation to take place, the SPY must first close above $134.90, then the next day, close above the previous day high. Should this happen, ultimately, the markets will head back to the 52 week highs at $137.18.
As the QQQ ran into the 50ma yesterday, there was a trade alert issued as a short at $57.00 (See Trade Alert Here
). This trade is still very valid as the Nasdaq has rallied almost 8.5% in two weeks. The QQQ's are approaching another monster resistance area at $58.35. This is a huge level. A stop should be used on this play of confirmation above that level.
This market will pull back. The question is when? I will be doing a No Hype Live broadcast Monday night at 9pm ET. Yes, I know it is July 4th, but honestly there could be news over the course of the weekend and I want to go over chart setups for the week and answer questions. Be there and be ready to rock. In addition, next week I will publish a new Hidden Gem. Most likely next Wednesday. With this rally cranking, there are plenty to choose from that should run big.
Next week, if this rally continues on Monday and the QQQ and SPY hit their next level, I will begin shorting individual stocks. I held back from that this week because I did not want to overload the short side going into a holiday. That turned out to be the right move. I am eying CAT, IBM, CVX and others. All nearing major resistance levels and insanely extended short term. I will post these levels going into next week and as I said, I will be playing some of these myself.
Have a fantastic July 4th holiday weekend. I wish you all the best. Stay safe and have fun!
Chief Market Strategist