Weekly Prep May 18-22, 2009 – Jonathan Lawson (aka Jonnie Law)

I was in sync on Monday and Tuesday, then got a bit out of sync on Wednesday as the ES and Dow remained strong, and the Russell, Nas, and Midcaps fell out of bed. That disconnect drove me to research. Wednesday night was a long night of coming up with a gameplan for the rest of the week. It was a very profitable bit of time spent.
This is what I love about Sundays

The NQ, TF, and EMD rallied hard off of their 23.6% retracement level. On Thursday, I became short of the S&P into the top of it’s newly formed downchannel (895). I called up my life Insurance company, 401K company, and sold ALL of my long mutual funds.
This seems to be a very relevant channel being created. It has already been very profitable, and led to some very nice entries and exits.

A few things to remember about this rally. It was ignited due to anticipation of suspension of mark to market accounting (Mark to Fantasy), companies such as Citibank announcing a profits IF you didn’t count any of their losses… WTF?!? Some earnings better than “expected”. This is funny if one realizes that many companies were NOT giving guidance, or lowered it to hideously low levels. And the anticipation of “Stress Tests”. The TV and other media have done a very good job of convincing the general public that it is time to buy, and not miss this “New Bull Market”.
SPX – I like what this chart shows me. I will probably be getting long a few Commodity related stocks into the 830-840 level. I am playing for an orderly pullback in the ES and YM. I have a number of shorts via puts, short call spreads, and 85p calendars. The thesis being, investors don’t want to be out of the market, because they think this is the new bull. So they will be in the Consumer Staples and Commodity related equity sectors.
Selling ES vs NQ and MC.
Looking for first bounce @ 868, then 840.
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Specifically I like FCX (42ish), Canadian Dollar (Low 83s), and TCK (9s). However, I will probably be getting long with a protective put as protection.

There seems to be some strong reasoning to see a weakening in the US $. The US Government is showing that they will do “whatever it takes” to not let companies go under. I like the way Rich Karlgaard of Forbes address this concept.

This is the risk of President Obama’s willingness to “do what it takes.” Those words sound positive and action oriented. They really mean “anything can happen.” The tearing up of legal contracts? That can happen. Limits to salary and travel? That can happen. Bullying by the EPA? That can happen. Nationalization of GM and Citigroup. That can happen. Nobody knows for sure what will happen. Government is sorting it out day by day.

This is NOT a bull market yet. Much more needs to be proven. Not the least of which is a price move above the 200 day MA. Perhaps the 50 day MA moving above the 200. Or at least the having the 200 day sloping up. Alas, bear market rallies have to prove themselves. This one has been powerful. However, as per likelihoods in Elliot wave terms. Markets once hitting Wave 5 lows (March 6), very often rally back up to their Wave 4 highs (940)
Here was one fundamental that was brought to my attention in The Gartman Letter (TGL) as it relates to the Obama Administration’s handling of the GM and Chrysler vs the UAW. Specifically, as UAW has been giving majority and prime status in the liquidation.

Precedents… the sanctity of contract… the rule of law… all of these things have gone by the wayside in the flash of Executive decision making here in the US.
The US dollar is simply frightened by it.
Capital moves to those areas it is welcomed, and it flees from those areas it is not. The US was always the residual harbor of frightened capital fleeing the capriciousness of governments elsewhere, while at the same time being the safest of harbors for long term investment

I voted for, and remain a supporter of President Obama. However I am in full agreement with TGL on this one. I don’t think the UAW or its members are entitled to this change of law.
I think the adage of “sell in May and go away” will be appropriate here for most investors. I am a trader, so I am lickin’ my chops. I think there will be much opportunity here. Lots of fighting between 830 and 880.
The Nasdaq is interesting (I have MNX 135p and 142.5c calendars). I think we hang around the downward sloping 200 day MA, and see an orderly pullback
I like this as a long against the ES.
Support @ 1342, then 1300.
Resistance 1363

The Russell (RUT) is very similar to the NDX as it relates to the Fib levels. However, where the NDX broke out above consolidation and the 200 day, the TF did not. It suggests more of a short here. I currently have a June/Aug 44p calendar on the IWM.
Long vs ES, short vs NQ
Support 472 and 450.
Resistance 480

Midcap 400 – Looks the same as the TF (Russell).
Long vs ES, short vs NQ
Support 544, 518
Monday resistance 547

Dow 30 – Weak, with room to fall. ES and YM have not fallen as far, which would suggest relative strength. But I see it as a little farther to fall to reach support. Two weeks ago there was a move out of the higher beta names in the NQ and TF, and this moved to the ES and YM. I believe that may correct somewhat as people rotate into some safety sectors. I am playing for an orderly pullback in the ES and YM. The thesis being, investors don’t want to be out of the market, because they think this is the new bull. So they will be in the Consumer Staples and Commodity related equity sectors.
My first down target remains 8050-8100.

Well, that is what I see ahead. The market can certainly surprise me and break out of the down trend channel. The Fed may announce something on Wednesday from their meeting. Albeit, I don’t know what they are going to say to make it rally. That could be an interesting day. I will be keeping eyes open for opportunity.
I also became short of PRU on Thursday into a snapback off the 200 day MA. So far, so good. A crack of the 200 day MA would be fantastic for my position.

If you’re a parent or husband or planning on being one, take a listen to this song. One of my favorites. When I have a reason to get steamed with my daughter or my bride, I remember these words.

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