Where to now for the market??

First a quick recap of yesterday’s session.

Stocks rallied off a very mixed opening to finish slightly in the black. Despite the positive tone, volume came in very light. From a market internals perspective, breadth and A/D lines were mildly bullish and cumulative ticks did finish at close to 40,000 so indicating some bullish sentiment out there. All in all it was a fairly weak bounce considering last Friday’s action. Interesting to see that the futures are up ever so slightly in today’s electronic market even though tech giant IBM and Texas Instruments both missed earnings. Apparently, the market is giddy over the reports that China will relax its tightening policy in the near future. It seems to me that the pro-growth China story is the last thing holding this market up. That’s all well and good but I wonder how long it can last given that the pace of China’s double digit growth is clearly not sustainable without consequences (housing bubble, inflation etc etc). Perhaps after the last couple of months and weaker than expected economic data coming out of the U.S and elsewhere, the Beijing administration has finally come to the conclusion that global demand is not sufficient enough to drive further growth in the Chinese economy so a more lax monetary policy is required to stimulate further domestic demand. The big question is how much are they willing to pay to get this? 4-5% inflation? An even bigger housing bubble than they’ve already got? At the end of the day whatever goes up must come down even faster. So there you’ve been warned! Okay enough of my ranting market opinions so where to from here?

Well I think this week will be a very important one for the market. At this stage, I think the market is pretty much at value right now and is waiting to determine where future value may be. On a technical level, any failure to bounce much further from here and we could easily retest the lows at SPX 1000. In fact from an intermediate standpoint it is imperative that the market does bounce here or else the overall longer term technical picture just looks that much weaker. On the quant front, I’m now seeing bearish studies popping up for the both the shorter term and intermediate term. I still feel that any significant move will be to the downside. It’s notable to see that bonds moved higher again and are testing resistance. Not a good sign for equities.

On the trade front, the GOOG trade is doing well as GOOG bounced and the trade is showing a 20% profit. At this point I’m inclined to ride it out for another day or so and will put in contingent orders to take me out of the trade based on price so I can hang on to my profit whilst I’m asleep (I should have done this from the beginning of the trade so take note!). I will also update my trade on GS – yes I did put on a put BWB at 145/140/130 for a small credit. So far this trade is slightly underwater and it will be interesting to see how the market reacts to GS earnings later tonight. (Also notable to see AAPL sell off a bit yesterday, they also report tonight so how the market reacts to its earnings is likely to offer a big clue on the current market sentiment).