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Friday, May 1, 2009

The Case For Bull/Bear; First Solar's Stunning Quarter


The cracks I've been discussing in this market which indicate the rally may be tiring has yet to develop into a full blown gaping hole as buyers continue to step in and support this market on any dip. The bottom line right now is that there is zero follow through on days of weakness and that has kept the indices firmly above the 20 day moving averages. Heck, we still don't have 3 consecutive down days since the rally began! The somewhat sideways action over the past few weeks has worked off the overbought conditions, so I have been a bit more aggressive on the long side in recent days, but am locking in profits quickly and setting tight stops. At the same time, I've been shorting with leveraged ETF's and a few individual plays when the S&P gets closer to the 875 level which has been key resistance. It's tricky up here.. no question.

There are compelling reasons to believe this market will move higher and compelling reasons to think it will move lower and soon. Let's look at both..

Bullish reasons:
- market remains in up trend and above 20 day moving averages
- market still looking for the positives (case in point today on GDP - not focused on headline number but underlying consumption number)
- Nasdaq breakout from double bottom base
- Dow cleared downward trend line off Oct, Jan and April highs today (by a hair)

Bearish reasons:
- no significant correction after V shaped recovery
- S&P continues to close below 875
- The Q's are right at resistance of the 200 day moving average on the daily chart
- Jim Cramer remains as bullish as ever (oh c'mon we all know now Jim is a contrarian indicator!)
- there are still big economic problems to work through

Lots of conflicting signals right now that indicate the end of the rally may be near but few MAJOR signals of that yet. What I'm looking at for tomorrow is how this market reacts to the move today. Remember that the trading action the day after a Fed move is often the opposite. I'll be keeping a close eye on that S&P 875 level which this market has had a heck of a time with (at least on a closing basis) as well as that 200 day moving average in the Q's around 34 (there was a bit of a reversal at that level today). IF, we follow through on today's strength and the S&P and Q's clear resistance I will continue to look for short term day and swing trades on the long side and would probably close out some hedging as well.

Given the resiliency of this market we can't rule out a move to the 200 day moving averages for the major indices which would occur around S&P 950, Dow 9000 and Nasdaq 1780. If we don't take out the 20 day moving averages quickly over the next few days a run to those levels becomes much more likely. The 20 day moving average levels acting as support are 1650 in the Nasdaq, 8000 in the Dow and 850 in the S&P.

To close out tonight, I'd like to discuss one trade idea and that idea is First Solar (FSLR). After the bell today the company smashed estimates, doubling revenues and more than tripling profits. This all at a time when the overall economy and solar industry struggling AND before any stimulus package catalyst takes effect. Very impressive. So impressive that I did something I rarely do and that's make a trade after hours. I alerted my Gold members to the earnings report and the long trade alert in FSLR at 165.13. Tomorrow I'm looking for it to get back above the 200 day moving average for the first time since last August. I certainly wouldn't chase it tomorrow particularly given the run this market has had but on any pull backs it will offer the opportunity to get in on the kind of company that will be a leader for many years
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