Weekly Market Summary for
Week Ending May 13. 2005
BY AL MARTIN

Last week saw the SPX trade in a 32-point (1147-1179) range, settling out the week at 1154.05, down 17.29 points, week over week, as the SPX failed at the technically important 1180 resistance level, when the institutional, professional trade and floor longs became alarmed at the huge amount, possibly as high as $3 bil, of professional short selling that wanted to come into the markets on a rally up to the 1182 50% retracement level, or, on to the 1184 now-right shoulder of the previous ‘head and shoulders’ top formation, a level which would complete the bounce off the 1140 support level.

The institutions and their old allies, the ‘Bullish Shill’ retail trade, made a desperate effort to drum up sufficient odd-lot buying from the ‘300-Share Joe Six-pack Retail Sucker Buyers’ in an effort to support the markets in the 1172.50/75 support/resistance zone, early week, in the knowledge that a close below the 1170 38% retracement level would engender fresh technical short selling.

The turning point came in Wednesday’s trade, which traded down to an intra-day low of 1158, below the 1160 200-day moving average, whereupon, the institutions made a last gasp effort to rally the markets, late session, and indeed were able to close the market above 1170, at 1171.11. However, professional short sellers, ourselves included, knew that the institutions were exhausted by the close.

As expected the institutions and their ‘NEBRT’ (pronounced neb-rit), or ‘Never-Endingly Bullish Retail Trade’, confederates attempted to ‘show’ the market higher on Thursday’s opening bell, quickly trading the market 2-1/2 points higher, burning up the accumulated overnight and pre-opening ‘300-share Joe Six-pack Retail Sucker Buyer’ ‘orders’, in the process. However, professional short sellers came into the markets at the 1173.50 level when they saw no follow-through buying, and, when the SPX fell below 1170, small account technical short selling joined the fray.

The institutions and their NEBRT allies did, however, mount a weak, mid-session, effort to support the markets in the 1172.50/75 support/resistance zone, wherein, as the SPX breached below the zone, short selling increased, helping to establish a fresh 1157.75 low on the week, before drifting back on light volume floor short-covering, to close at 1159.36, just below the 200-day moving average, raising an ‘all clear to short on any rally’ pennant, for the following day’s trade.

As per usual, the institutions and their NEBRT allies, attempted to ‘show’ the market higher on Friday’s opening bell, in an effort to bring in fresh retail sucker buying and, hopefully, to push back short sellers. Indeed, the institutions were able to trade the market back up to the 1162.50/65 support/resistance zone; however, as volume dried out at the 1163.50 level, the market began to fall back, breaching the 1160 level, which, in turn, brought in fresh short-selling from the professional and small account technical trade.

As the market broke below the 1158 level, fresh disappointed long liquidation, from the professional trade, joined the selling, wherein, InsiderIntelligence.com issued an immediate ‘sell short in size’ recommendation, at the 1157.50 level, to our private client services list. As the market fell back, the institutions made a weak effort to support the market in the 1153/55 support/resistance zone; however, when the zone was breached, the market quickly fell back to the 1147 bottom of the 1147/49 support zone, before finding support, at which time InsiderIntelligence.com issued a second flash recommendation to cover all shorts at the 1147.50 level, with subscribers reporting an average 9-point profit, in the day trade.

Whereupon, in late Friday’s session trade, the market drifted higher on the back of scattered, moderate volume, professional, small account and floor short-covering, aided by last minute, light volume, institutional ‘shill buying’, to close the market back into the 1153/55 support/resistance zone, at 1154.05, but, nonetheless, the second consecutive close below the 200-day moving average.

With Q-1 corporate earnings now largely behind us, the coming week’s trade will refocus on the economic calendar and next Friday’s option expiration trade.

In the coming week’s heavy economic calendar: market action will be focused on Tuesday’s-Wednesday’s inflation data, with the key being the CPI ‘masthead’ number, to see if building inflation at the producer level is being successfully passed on to the consumer. Of further interest will be Tuesday’s housing data, which we expect to stay strong, given April’s NMBA mortgage application data; also, Tuesday’s industrial production numbers will be closely looked at to see if the IP does indeed decline for the 4th consecutive month, which would focus market attention on the growing problem of unsold inventory buildup at the wholesale level.

Based on Friday’s 1154.05 close, the 1153/55 zone becomes both support and resistance, with support/resistance zone/levels as follows: First upside resistance at the 1161 200-day moving average, on to second resistance at 1162.50/65, on to the 1170 38% retracement level, on to the 1172.50/75 resistance zone, followed by the 1180 resistance zone, the 1182 50% retracement level and finally the 1184 right shoulder resistance level. First downside support is the 1147/49 zone, followed by the 1143.50/44.50 support zone, down to the key 1140 support zone, on to the 1134/35 support zone.

Traders would note last week’s USM/DXM market action wherein both contracts were rising, a trade that cannot long persist, wherein, depending on this week’s economic calendar releases, we would expect the USM contract to fall back if, for example, the coming inflation data [should?] print ‘hot’ versus expectations. Indeed, the USM contract, basis Friday’s 115.20 close, is near term extremely overbought on a technical basis, as is the DXM contract, basis Friday’s 86.10 close.

Also, the metals complex is now near term oversold on the back of last week’s market action; we expect a bounce, in the coming week’s trade, led by the SIN contract, in that silver continues to be the strongest of the complex. Further, the grains are fast approaching oversold levels; thus, we like buying the WN contract on a test of the 3.00 level.

We continue to invite subscriber e-mails to virtualagency@yahoo.com with your trading questions.