Market Forecast: SPX, Nasdaq, XLF, USO, OIH, MOO, XME

Submitted By Andy Wang

The market’s recent focus has been centered around the financial sector and the oil price. Any news in these two areas have been able to influence the overall market movements. On Monday, LEH reported earnings that matched expectations and helped the financial sector; further, oil went lower. The result? The market saw some buyers coming in. On Tuesday, even though GS reported better-than-expected earnings, it seemed appropriate for people to lock in profits, which dragged the financials lower. The overall market became weak. On Wednesday, the financials continued to slide, and oil went up! Both pressured the market lower. On Thursday, China announced that it will raise gasoline and diesel prices, and oil took a big drop. The overall market was stronger. On Friday, the crude price went up, and the financials were very weak. The market dove again!

The major indices are still looking weak:
SPX

SPX lost 24.90 points to close at 1317.93. It closed below the 1320 support. Its MACD went lower.

Nasdaq

Nasdaq tumbled 55.97 points, but, managed to stay above 2400. Its MACD also dropped.

Both indices are now in their bearish phase. SPX is on its daily lower BB and could test 1300 from here. Although Nasdaq was able to hold 2400, it may have some downward momentum on it’s side still. Below 2400, Nasdaq has a stronger support at 2350. VIX tested 23 on Friday, but, closed below. However, breaking 23 may allow it to pop much higher, which will not be good for the market. Even though we have been seeing pockets of strength (agriculture and coals, for instance), the overall market is showing many weak signs. So, for the new week, I still think it’s safe to play things lightly and keep lots of cash. Wednesday is the FOMC meeting, which could be a big influence on the market. I don’t think the Feds are likely to change the rates this time, which, depending on the language that they choose to use, could be a positive thing for the market. If the overall market is weak, techs seem more vulnerable. On the other hand, agriculture and coals took time to breath at the end of the week and may have created room to bounce up. Let’s take a look at some sectors:

Sector Watch
XLF (financials)

XLF’s chart looks horrible!! It continues to make new lows. The daily MAs are still going deeper into their bearish formation and the MACD is still sliding. GS, however, seems to be bucking the trend. After Tuesday’s profit-taking, it has bounced back. After all, it did deliver a better-than-expected earnings report. Until we see the financials finding a bottom, it seems very difficult to find sustainable overall market strength. AIG looks very weak, and, below $32, it could start a new leg down!

USO (oil)

USO popped up on Friday, but, closed lower than its open. There’s further news on Saudi Arabia willing to increase its oil production this weekend. However, how soon can the consumers feel the easing at the pump seems unknown. USO has been staying range-bound ($107.5-112.5) since that big pop two weeks ago. We need to at least see it below $107.5 and heading lower to be more comfortable. Further, it needs to go below $102 to draw the recent high as the short-term top.

OIH (oil services)

OIH has been very volaitle. It almost broke out on Thursday, but, got pulled back. It is still showing a bullish formation. With the way that people are focusing on oil, I think sooner or later this sector will break out. RIG, DO, SLB, and NOV are among the favorites.

MOO (agriculture)

MOO broke out last week, with POT, MOS, CF, MOS, and AGU leading the sector to new heights. On Thursday and Friday, we saw some profit-taking on this sector, which could be seen by some investors as a buying opportunity.

XME (metals and mining)

XME also broke out last week, led by the coals (ACI, BTU, CNX, ANR, PCX…etc.), which achieved new all-time highs. X, which made a new all-time high on Friday at $186.49, could have more room to go higher, as it pulled back to close at $182.79.