Month End

The market did indeed snap back from it's oversold position, with the early part of the week accounting for the majority of the gains. Volatility ensued mid-week, with a rally into the end of the week. Unfortunately, this rally was rudely interupted by news late on Friday of another banking crisis, this time in Europe where the confidence is that much more fragile. With last weeks price action and this week encompassing a month end, we will take profits in the 1330 area, whilst still running a stop loss of 1270.

Oversold

There was no shortage of culprits for this weeks selling carnage. From funds being raised for the Facebook IPO to rumours that JP Morgan had been desperately unwinding numerous derivative positions before the regulators arrived ! Not to even mention Europe, that was probably the biggest reason for bids to dry up, so that at certain levels the market hit 'air pockets' and selling became a reason in itself for more selling. A European break-up has unquantifiable consequences. This has left the market short-term, in a technically oversold position, where any short-covering should create a bounce to the 1350 level. On reflection, we were too early with our speculative buy mid-week. We will be averaging down at any price below 1300 this week. However, a stop-loss should be put in place in the region of 1270, to protect some of the monthly gains made.

Price Alert

As mentioned at the week-end, we did not think the market was oversold enough at the 1350 level. With the further sharp sell-off of the last two days we are now much closer and we will be looking for a price of 1325 or lower to open a small 'up' position, before the end of the week.

Summer Time Sadness

The weekly follow through was as dramatic as we thought, with the outside hours low first thing Monday, proving to be a near low for the whole week. In fact the finish on Friday was also not too dis-similar, making the week basically unchanged. This could suggest a base being formed around this level, however, the JP Morgan news on Friday is worrying. In an apparent breach of both Volcker and Dodd-Frank rules, it appears yet again that the  'too big to fail' financial institutions are speculating and hiding behind the story of a 'hedging strategies' position. After only three years since the world faced financial Armageddon, it seems they have still not grasped the basic principle of risk. With Europe turmoil now looking ever more current, how many other similar speculations are being held by the financial industry, that could bring some summertime sadness in the following few months. We feel the market at the 1350 level, is in mid-month mid-point position, between a 1387/90 high and a 1313/28 low. This is backed up by the volatile price action this week that ended roughly where it began. With last weeks gains banked, we are holding a watching brief at present until a more oversold / overbought position presents itself. 

Uncertainty

With a major unemployment report and multiple European elections taking place, the market had a lot to think about this week. As usual, when great uncertainty exists, markets exhibit weakness and the S&P wobbled to finish the week at near term resistance. However, with the majority of events happening after the Asian closes on Friday, we expect a degree of follow through on Monday down to about 1355, and so will use this opportunity to take profits. There is potential for the market to nudge further down over the course of the week to 1335, but this would be a strong pivot level where we would prefer to be flat especially after a 5% +  fall in as many days.

Month End

As we thought the market did indeed rally this week, to set up the possibility of the month ending where it began. In technical candlestick terms this would be a 'doji' event and portend a trend reversal from the last six months. The market always has the capacity to surprise however, and so moving into a new month we have to be ready for a 'firebreak' up to a level of 1455, on the hints of more quantitative easing. On balance though, we maintain a bearish stance with an initial target of 1310. We dipped a toe in the water with a short @ 1402, and will be adding to this position @ or above levels of 1405, 1410, 1420 and finally 1455. For exact prices keep tabs on the Portfolio blog.

Breakdown

The last two weeks have seen a preliminary breakdown of the last six month's up-trend. Not surprising considering the overbought nature of last quarters close (Jan - Mar). For perfection, we should now see a weak rally, that tops out below last quarters high of 1425. We shall be looking for opportunities at the 1400 level to short into. The catalyst for which could be Apple's results this Tues 24th.