Market Outlook for the Week of March 16th

This week will be a very interesting week, especially for the S&P 500. The S&P has been up 4 days in a row and was up 10.71% last week alone. I honestly feel like this is similar to the last part of November however, the volatility has dropped. During the last week of November, we closed up 4 days in a row, however, it was a holiday week (a lot of short covering goes on during holiday weeks). I want to see if the S&P can get above 777 for the first half of the week. Currently, it looks as if the S&P is in a resistance level, until about 777, and if we break through with strong volume, 800 on the S&P looks probable. I would keep a close eye on volume because if volume is relatively light, we could retrace quickly. Even if we get to 800, there are still strong resistance levels at 815, 850, and 870. Therefore, I am more bearish than bullish, at these levels.

I bought some small pieces of SDS to protect my long position but I have over 90% of my trading account in cash. I mentioned I purchased some FAZ Friday; however, I sold it because I am heading out of town. Keep in mind FAZ could drop 10 pts or gap up 10 pts in a day or two; however, it seems oversold and I would look to nibble at these levels. Also know that if you buy a $2000 position in the FAZ, you are really playing with $6000 because it’s triple leverage. Also, I rarely ever hold leveraged ETF’s longer than a few weeks because they track intraday averages and the volatility can eat away at your returns. Another option would be the EEV, which is the 2x inverse of the EEM (emerging markets ETF). The key is to scale slowly into the position and don’t use all of your bullets at once. I feel like we are approaching a retracing period, therefore, I lightened my longs and have some short positions on the table.

However, if we do break through resistance and look to be heading towards a 8 handle on the S&P, there is some opportunity. I have some of those healthcare value plays (archive) from Friday on my watch list. HUM is still cheap, regardless of the takeover speculation, as well as UNH. In addition, I would be watching UYM, POT, CREE, MS, and TTWO. Also, I would look at old longs like TXN and PCR. Of course I would have some “dice rolls” on the list like ANAD, CENX, or MU. Semiconductors starting getting hot after I sold my CY stake, the "RF" holding curse is over. All of these for trades only, for the long side. As for the short side, I will look to short commercial real estate names, by shorting the common or through buying puts. The list from Commercial Real Estate Part 2 is a nice watchlist. In addition, I would be looking to scale in some SKF. One thing I might add is to be careful shorting hard to borrow stocks. Recently I talked to a few friends who use Tradestation and they have been blown out of short positions quickly, without an e-mail or a call from their broker. Instead, they log-in to their account and poof, they have cash and a loss.

I will be back Thursday; however, I should be trading Wednesday or maybe Monday if I can get my internet connection working through the blackberry, while riding on the train. I will also try to post. As always, have a good one and I will be in touch.