10th July 2010 - Michael's Market Thoughts

Well a positive finish to a strong week. Looking at the market internals, it was strong across the board with up volume versus down volume both above 70% on the NYSE and Nasdaq and Advancers versus Decliners both finishing in very bullish territory. Notably Cumulative Ticks also finished at a very high 90,000 indicating a fair amount of institutional buying. What was concerning for the bulls was very low SPY and ES volume (multi-month lows) which according to one of my quant subscriptions has short term bearish historical ramifications going forward. Myself personally, I still have a short term target of 1085 on the ES and we are not far off that heading into Op-Ex week. My current trading thesis is that the markets are likely to stay within a wide trading range (1100 - 1000) on the SPX until we see more evidence of where the global economy is heading. So far the signs suggests that there are significant risks to the downside (especially sovereign) and whilst the markets have priced in a slow down in Europe and recently a slow down in the US, what it hasn't fully priced in is a slow down in China and that is my main concern going forward. On the short term horizon, we have the start of earnings season next week so expect more volatility going forward. It should be an interesting week!