Power Play
After a flat churning
day like Friday, any downside from here should be a decent short-term
sell signal. The tape is still strong, but the churning of many techs, which are
the weakest link and back to high valuations, is evident by the inability of the
QQQs to move over our 49- (7-squared) to-50 strike target from over one month
ago. Either Friday’s expiration will mark a short-term top or we’ll get some
upside-breakout follow through soon and a continuation of last Wednesday’s
thrust. Isn’t it special how the arbs got the Nasdaq to close right at the 2000
strike and breakout point for expiration and how the June S&Ps grazed 1300
on Thursday and Friday?
Of course, the big news Friday was the $13 Goldfinger
in bullion. The
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commentary from May 12. A nice Bowling for Strikes play took the index from
55 to 65 in just two weeks. Things sure have changed. The trade deficit erupted
and soon the dollar will buckle and the inflation genie will be out of the
bottle. Inflation does look like it’s coming back with a vengeance.
With the explosion in gold and the S&P at
1300, it looks like we are at an inflection point. Even if this is a brand-new
bull market, that doesn’t mean we won’t get pullbacks. I would remain cautious,
as we are stretched short term. If it was, in fact, the Working Group who bought
Wednesday, the market should act tired, as their June S&P inventory weighs
on the market. If we do trade below Friday’s lows, I would remain cautious and
see what the next three days portend. Continue to use 1280 as a pivot.
For today, be defensive on trade below 1290 and
look to trade long above 1296, basis the June futures. Keep in mind the largest
up-tick reading of the year occurred on Wednesday’s spike. So don’t get too
rambunctious on trade over 1296 unless 1300 is captured for real and legitimate
momentum is on the tape. Unless there is downside pressure, continue to play
from a bottoms-up approach and keep the behavior of the indices on the back
burner: Under the mask of sideways action on some of the indices, many stocks
are in strong uptrends and runaway moves.
Names of the Day
On the upside — Power-One
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an expansion pivot/expansion breakout.
Also look at Burlington Resources
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Western Gas
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Precision Castparts
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Hydril
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I still like Enzon
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Friday.
On the downside — none.