Market Week in Review, June 7 – 11

Risk assets generally found support in the week just ended, and the SPX posted gains for the period, with the Dow closing back above the 10,000 mark. After another sharp drop on Monday, buying came into the market, and the week ended with a strong move in the final hour on Friday. The technical picture was clouded by falling volume as the rally progressed, which indicates that there was not strong conviction among buyers.

Foreign stock markets also advanced, led by China and Australia, and even the Europe 350 gained more than 5% on the week. Many commentators appear to see the European action as nothing more than a “dead cat bounce” but the Asian markets look more convincing. Their leadership is encouraging.

With the risk assets rallying off support, naturally the safe haven assets retreated at resistance lines. The US Dollar and Treasuries, winners during the recent selloff, pulled back modestly. Commodities were a mixed bag, but energy found some bargain buying, and crude oil finished above $74. Once again we see that the $70 level is strong support as buyers find it attractive at that price. After rising the prior two weeks, the natural gas continuous contract ended exactly where it began the week, at $4.80. This is something that continues to bear watching.

On Tuesday, we called a short term rally and turned out to be correct. I acted on this and took several large positions, going long China and certain energy stocks, and short the Dollar and long bond. So far so good, but we can’t forget the treacherous nature of this market. Trading positions like these should be watched carefully and exited at the first sign of trouble. Next Friday is options expiration, so we can expect to see plenty of volatility. My targets for the SPX are 1120 and then 1170 but, as always, we’ll let the market tell us where it wants to go – and we’ll respond accordingly.

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