A Galleon Goes to Depths

May 15, 2011

Weekly Market Outlook

By Keith Schneider


This week's notable event was that Galleon Hedge Fund founder, Raj Rajaratnam was convicted on all 14 counts of insider trading. One of the richest people on earth and certainly the richest Sri Lankan was educated at Wharton Business School. The insider trader ring also included other classmates from Wharton. My take is that either ethics was not part of his major or he attended a class and snoozed through it. Raj now faces up to twenty years on each count! I am sure he will have plenty of time to brush up on the subject.

So kudos to the FBI and the dwindling enforcement staff at the SEC for cleaning this up. We never mind competing with the best and the brightest but removing market participants that don't play by the rules helps level the playing field just a little bit.

For specifics on our current technical outlook read on.

SPY (S&P 500), DIA (Dow Jones), IWM (Russell 2000) and QQQQ (NASDQ 100) Indexes

Faced with inflation concerns, improving consumer sentiment, horrible housing numbers, Greece's sovereign debt woes, and the massive Euro drop, the Dow moved into triple digit gains or losses several times this week before settling marginally down. This leaves the market in bullish phases, although they seem to be stalling for now. The IWM looks most susceptible to a break as it is sitting just above the 50 Day MA. The QQQ's have had a narrow trading range over the past few weeks and a breakout either way should work well. A breakout above the recent highs would catch a lot of shorts and surprise many while a breakdown beneath the two week low could be the start of something bigger. Complacency is not recommended.

Russell 2000(IWM) Testing the Trendline and 50 Day MA

IWM Chart

QQQ's Consolidating

Market Internals

VIX (sentiment): We are still on a sell signal with this sentiment indicator since it registered irrational exuberance a few weeks ago. Only a close above the highs of the past few weeks in the key indexes would cancel this signal.

VIX.X Signal Intact

VIX Chart

Accumulation/Distribution Volume: We now have 4-5 distribution days across all indexes, another sell signal and warning that the big players are liquidating. Risk off!

Sectors

SMH (Semi's): This ETF is consolidating at a high level and out performing most other sectors. It needs to break to the upside to lead another leg up for the general market.

SMH Chart

XLF (Financial Sector): This sector has been dragging the market down and appears to be rolling over. It needs to hold the 200 day MA. Will Semis' pull the market up or are the financials going to drag us down? We are already at the March Lows in XLF!

Financials at March Lows

XLF Chart

Gold (GLD) and Silver(SLV): Gold and SLV basically closed unchanged for the week after much volatility. We surmised there'd be initial support in SLV around 31.50. The low was 31.97 before it staged a nice rebound. Let's see if we can back and fill a bit more in here and establish a low risk entry. For now, these markets are great day trading opportunities.

GOLD (GLD) Holding Trendline

GLD Chart

Silver(SLV) Holding Support

SLV Chart

Mini Swing Trade (featured trade from MMM Premium and CSTS)

The featured mini-swing trade this week was CREE. We liked the setup in the Semi's sector (See above) and Mish had CREE in the crosshairs as it had been pummeled. She figured it good for a bounce as it was very oversold and holding a key moving average for several weeks affording a controllable risk. With Semis poised to lead the market, CREE was a top performer with a 10% gain in just 2 days.

CREE Chart

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