Option Investor
Index Wrap

Summertime Green

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Summertime Green
Austin Passamonte

While summertime blues may strike the market soon, it's possible things will turn green before long. We are entering a tenuous period of time but then again, what else is new?

Pre-warn season has most market participants spooked. Who will be the first to march out in front of the firing squad and how can we avoid being long their shares is the question on many minds. There are certain to be many and what they have to say about the next quarters ahead will make all the difference in quick bounces from knee-jerk selling or blood that spills over their sector.

Make no mistake: traders want to buy this market. The whole world is sick of selling pressure, gloomy forecasts and persistent bear markets. Americans have a shorter attention span than most and tire of a continual saga with no end. Market analysts are lining up to tout how the bottom is in, recovery is ahead and all will soon be well. Even easy Al is talking up the economy's future in ways I can barely recall since the last time he tried to pump us all up.

And it will work. When and for how long remains to be seen but our charts are trying to tell us that sustained upside moves may be next. It is a little early to buy & hold the long side with reckless abandon but short of any nuclear market bombs we should trade higher from here for awhile. Want proof? Join me in the charts:

(Daily/Hourly Charts: )

The Dow's daily chart signals are reversing from oversold and just made it's first bullish "kiss" before the cross today. Also note that Monday's candle broke out of our little wedge and closed on top of it for support.

Meanwhile, the hourly chart shows stochastic values buried in oversold. I wouldn't be an enthusiastic buyer precisely now, although we could see the market move steadily upward without pause. I'd be more tempted to just take a stab if pre-warn season wasn't here to offer high odds we'll cycle back down at least once this week if not more.

(Daily/Hourly Charts: )

Same story with the QQQs. Looking bullish, smelling bullish but 60-minute stochastics pointing down just out of overbought extreme. I'd love to see them cycle down to oversold and reverse from there, but a break outside of this neutral wedge as stochastic lines turn back up in unison would be a call-play event with better than even odds to win.

(Daily/Hourly Charts: )

The OEX is extended but could become more so. A clean break above the 660 level could signal our next big run, but I personally hate to buy plays in the direction stochastic values are buried. However, daily-chart strength coupled with significant recent resistance near the 660 price magnet would convince me to at least give it a try.

(Daily/Hourly Charts: )

Our beloved Jeff Bailey must be pleased! His deep cyclical loves are looking pretty healthy from here if daily-chart signals can manage an about-face to turn up. The hourly (60-minute) chart is clearly extended but breaking that neutral wedge two sessions in a row is cause for bullish celebration.

Coast Is Clear Or Omaha Beach?
Weather this pre-warn season and the summer rally might blossom in earnest. A few cautious factors to keep in mind do exist. The VIX and other volatility measures are very low as complacency is high. That leaves investors exposed to over-reaction should some big-cap landmines be struck.

The earnings this quarter will be abysmal and all are prepared for that. The only thing that matters will be forward guidance. If the prevailing theme is no recovery in sight this year, buyers will strike for the summer. Prevailing sentiment that the worst is truly over and I'll look to play the upside far into the future from there.

While daily chart signals all suggest upside strength is near, their corresponding weekly charts are all topped out and in some cases (SOX) reversing down in bearish fashion. How can we be bullish? Weekly charts literally take weeks to cycle through. I trade timespans less than that and so my outlook is based on the dailies. This does not mean all is well and we have no downside risk to worry about. Daily chart signals could roll over from oversold extremes right now and get plenty more oversold from here.

It's a wait & see game.

Let's worry about the balance of this week and go from there. Many think we will be rangebound for awhile and I tend to agree. most summertime action is, but two or three solid trend moves usually occur and upside action may be our next. I'll look to play from there and we'll see if those general plans get thwarted as time moves on.

Intel's conference call could be the next major catalyst. For them to say the future is clear would probably be the next big market move up from here and would raise all ships for sure.

We could easily see the Dow exceed recent highs and possibly test the all-time high within weeks if pre-warn doesn't kill and forward outlook improves. Will that happen? Heaven knows, but daily chart signals are aligned in oversold and turning up for the first time since early April. Those who missed the train back then have a credit to buy a new ticket soon. If not derailed along the way, we could enjoy a circuitous ride to the top of Pike's Peak as the summer sizzles on!

Cheap Education, Part II
I had great fun last night visiting with just over 100 traders on two Webcast seminars and hope we all learned a few valuable things. There are more people who wish to attend the Day Trading seminar and it will repeat this Sunday night I believe. Please do not contact me for details, I have zero control over that. My role is merely to show up and share some information. We will all learn of the upcoming schedule together when it posts.

This Sunday night I'm also lined up for a discussion on basic technical analysis which will cover the favored tools I use and how they interact to signal support, resistance and entry points. It will be in tutorial fashion with plenty of time for freestyle live chart interaction at the end. Sure looking forward to having fun with a number of you while we lean together again!

Expect plenty of market volatility but the upside seems highest odds right now and that's where my money will play until proven otherwise.

Best Trading Wishes,

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