The Dow finished the week with a small gain amidst negative corporate and economic news. Going forward this week, it will continue to be difficult and choppy. I am slightly inclined to be bullish, still. While anything can happen, the Dow should finish off its run to the resistance level of 13150 before deciding on the next course of direction. Again, the longer term projection remains bearish as suggested in the weekly chart. This trend can be difficult to change without any further positive development from the US economy and stimulus measures. The global economy is not too helping, either. For these reason, there will be difficult times ahead for the world equity markets.

The situation can get worse. Now, the eyes are on the China’s market and its economy. Everyone is hopeful that it continues to sustain so as to support the global economy and to prevent it from collapsing. This, too, is not very promising. With Beijing Olympics entering its final moment, the pace of development is expected to slow. At the same time, with the Chinese government also busy fighting inflationary pressure after more than two decades of rapid growth, it may not be too interested in stimulating its economy further. Unemployment may grow. Banks may tighten credits as well. They just have to ensure there will be no housing bubble. This is still a concern and debatable.

My positions on the Dow and S&P charts remain unchanged from last week: Bullish but weak. No one should open any new position. If you have already an opened (bullish) position, stay put but get ready to close it.

DJIA Daily Chart

The Russell 2000 chart is quite interesting, especially so for the options traders. We have a resistance at 730 and support at 645. The resistance seems to be strong. Shorting Bear Call at appropriate 780 level or higher is good. Iron Condor can be useful when the market retreats later in the next few days.

RUT Daily Chart

A CASE STUDY

Some time last week, I have put General Motors (GM) in the list of Stocks to Watch. GM had a resistance to break at $22 as well as the 50-day moving average. That would constitute a bullish breakout especially if that was accompanied by strong volume. I was actually expecting the breakout to also occur on RSI 60-line. But that did not happen. Instead, the stock retreated as soon as the RSI hit 58.99, just a hair-thin away from the 60-line. Certainly, it did not trigger my longing for the stock (I meaning longing call options of the stock). This actually saved me from trouble.

Given this scenario, GM’s bullishness is weak. I would be looking at shorting with Bear Call. This can be advantageous as the Slow Stochastic is near overbought zone. Let’s see what comes out later.

GM Daily Chart

STOCKS TO WATCH:
NIL

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