Weekend notes on the market -- May 18 ,2008

Something got to give?

Too busy this weekend so I am going to be brief here:

On the market:
Bulls have been clearly running the show in the past few weeks, and it is impressive how they shrug off any negative news and buy all the dips. However, the consequences the rocketing oil price, which just broke out, just cannot be overlooked for long. Either oil will experience a mini-crash shortly and the market marches higher, or the oil continues the advance and the market pulls back. In other words, I just don't see the scenario in which both keep rising for extended period, no way.

On the major indices:
1. They are either in or near overbought on all major time frames (weekly, daily, 60 min).
2. The weekly charts still favor more upside movement in next couple of weeks as the positive momentum continues to rise overall.
3. The daily charts show ongoing bearish divergence in momentum. The major indices are either yet to claim or set solid footing on their MA200.

On the overall trading strategy for the coming week:
While there are not a lot of serious warnings signaling the end for the ongoing 2 month long light volume rally, initiating new SW long positions at this stage may not be wise unless you believe that the market will test or even make new highs by this November. On the other hand, trading from the short side must be nimble when it taking profits and stops must be honored.

Weekly Trading calls:

1. AAPL: either S2 using 192/193 as reference, or S2 when it closes below MA10 on bearish candle, IT=170.

2. Natural Gas plays: looking for small SW-S3 initial positions on DVN (near 130) and APA (near 150).

3. Steel plays: looking for small SW-S3 initial positions on AKS (near 80) and X(near 200).

4. CTRP: SW-L2, ez=48-MA200, IT=63

5. MON: SW-S2, ez=128.8-132, stop just above 133, IT=MA50.

6. WFR: SW-S2, ez=78-82, stop 84/86, IT=70/65

7. SOHU: looking for speculative SW-S3, ez=90-100, IT=75.

ER Plays:

MON: LOW, NCTY, DRYS, EXM
TUE: TGT, MDT, INTU, HD, CSUN,ADI
WED: LTD,PETM,NTAP,NTES,CRM,SOL,SNPS
THUR: ZUMZ, STP, GPS, ARO, ANN.