Weekend Stock Market Analysis: 11/07/2009

What a difference a week makes. Last Friday, it looked like the market was about to go under but it did not materialize. At least, not this week. Some trapped bears may be feeling the heat as the indexes have recovered nearly all of last week’s dip. Again, we are seeing relative strength in the big caps while Russell 2000 components are weighting on the market. We are also seeing the familiar pattern of higher volume on down days and lower volume on up days which is a warning sign, nothing more. Remember that every single 50% fib short setup have failed since March except for that failed head and shoulder pattern.

Next week could be a slow week as the market digest the recent volatility. There is very little economic data coming out. Levels to watch early next week will be SPY 107.50 / ES 1071. Technically, we are still in a short setup until this level is breached as it is the 61.8% fib of the entire downtrend. A move past that level would almost certainly lead to heavy short covering and point to a test of the high at SPY 110.31/ ES 1099. Another possibility is the SPY 108 / ES 1075 level for a right shoulder of a potential head and shoulder. As far as downside goes, SPY 106 / ES 1054 could act as a short-term support and a breach of that level could point to further deterioration.

Economic Data: Very light week in terms of economic data with nothing big on the horizon

Tuesday: IBD/TIPP Economic Optimism (50.3)
Thursday: Unemployment Claims (512K)
Friday: Trade Balance (-32B), Prelim UoM Consumer Sentiment (71.2)

Weekend Reading:

Eliminating bias in trading (Trader Feed)
End of Year seasonality after a 10% gain (Trader’s Narrative)
Being prepared for the easy money (SMB)
Extreme Nasdaq breadth point to higher prices (Quantifiable Edges)
Bad bad unemployment report (Calculated Risk)
UUP Insider trading (The Pragmatic Capitalist)
Goldman Sachs lost money trading on only one day in Q3: Why are heads not being chopped off? (Fund my mutual fund)
She ran to gunfire and ended it (NY Times)