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Gar's Market Blog
Outlook for Tuesday ( 16 February 2010 )
[As a reminder, the market is closed Monday, Feb. 15)

Cliffhanger for Long Weekend

Keeping true to form, the market spiked well off its lows in late Friday trading, and with a surge in volume. What made this particular surge unusual, however, is that it occurred ahead of a 3-day weekend. Where I come from, no sane trader would have ever dived in head first in front of 3 days of possible uncertainty. If that is the case, then who was doing all the buying?

Some of the rally was likely the result of short sellers covering their positions late in the day, but regardless of the source, the S&P managed to close at a very precarious level.

If you look carefully at SPY (S&P-500 ETF), Friday's close is right smack on the high end of the recent downtrend. Observe the dark line I drew on the chart above, which marks the peaks of the downtrend, and then notice that Friday's close is slightly above that line. What this means is that the market "wanted" to make a higher high than its previous close, which would be the definition of an uptrend, not a downtrend. If Tuesday's action trades even higher, then the market may have broken its downtrend, at least for the near term.

On the other hand, should the S&P fail to handily break above this line, then many more days of downside are likely.

Hence, Tuesday will be a make-break point for the S&P, as this could define the direction for the upcoming week.

Outlook for Tuesday

As mentioned above, Tuesday is a day or reckoning, for either direction. A close higher than Friday could every well mark a new uptrend, while a lower close will merely comfirm more downside. Hence, our outlook for Thesday is mixed, as the trend could be set during the first hour or two of trading.

Don't be fooled by the open, and in fact, the market might very well gap up or down, only to reverse course midday and close strongly in the opposite direction. All else being equal, it is the close that indicates multiday trends.

Sector Watch

Sector streanth or weakness will simply be the hostage of the US dollar. Should the dollar trend lower, then look for commodities and precious metals to soar. Should the dollar spike higher, the Technology will outperform, albeit against a very weak market. Watch UUP (US Dollar ETF) as your primary indicator.

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