What a great comeback by the bulls last week! But its time to let that go and start planning for what the markets might offer us next week. Looking at the S&P chart, it is obvious that in spite of the rally last week, the chart looks bearish. Lots of overhead resistance up ahead in the form of MA(50) and MA(200).
The next major resistance is the 1085 level, which can be more easily determined while looking at the 15 minute chart.
If anything, the NASDAQ chart makes for even more interesting reading, primarily due to the possibility of a gap fill.
The exact resistance levels can once again be more easily seen in the 15 minute chart.
As can be seen in both the S&P and NASDAQ daily charts, the volume has decreased as the rally has progressed. Also, the markets are not in overbought state right, but will be with another day of gains.
Now that the obligatory charts are over and done with, let's just sit back and think for a minute. The coming week marks the beginning of earnings season (earnings calendar for next week), and frankly speaking, I don't think all these charts are going to matter much. We are going to be in a market that is going to be basically trading on news. I still posted all the charts above since its always nice to know the important levels up ahead. Looking at the very immediate future i.e. Monday, consider this. The market rallied over 5% last week from oversold conditions. Hopefully, you were long (the readers of this blog have no excuse to not have been long!) and made a lot of money. Now come the earnings after hours tomorrow. Would you be willing to risk your hard earned profits on earnings which are basically a lottery? Exactly! That's why I expect to see some profit booking tomorrow. The fact that its the options expiration week the coming week will just further add to the volatility.
So, based on all of the above, here is my strategy for next week - Take partial profits if you have been long. Cash is the best position to have the next week. Let's wait and watch what kind of numbers we are getting and we can take it from there.
Take care and good luck!