Monday Morning Outlook: On the Edge of a Technical Cliff
Psychologically critical technical levels are still up for grabs
by Todd Salamone 6/18/2011 12:45 PM
It was a rather hollow victory on Wall Street Friday, as the Dow limped to its first (barely) positive week since April. Despite some wild gyrations during the course of the week, the technical picture really hasn’t changed that much, with the major market indexes still lingering near their respective year-to-date breakeven levels. However, Todd Salamone warns that traders also have a few high-profile trendlines to monitor in the days ahead, as a breach of these key technical levels could spell serious trouble for stocks.
The good news for the bulls, as we discussed last week, is that the widespread pessimism we are seeing is very similar to that which has existed at various correction lows since the market bottomed in early 2009. Said another way, the risk to the bears is the tremendous unwind potential from short-covering activity, or sideline money suddenly reemerging. This risk is heightened as long as the major market indexes stay in the black on a year-to-date basis, and hold above their respective long-term moving averages.
We continue to advise avoiding, or even shorting, big-cap financial names and big-cap technology stocks. Long exposure can be concentrated in retail/leisure names and gold.
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