Will This Rally Last?
Posted by dann
August 21, 2006 at 11:10 pm
***Written By: Dann Mcnulty Stock Forum ID: WallStGolfer31***
So after huge gains in the Dow and S&P can we expect last weeks rally to hold up and continue? Analysts seem to be on both sides of the issue, so there’s no help there. Mutual fund managers are say they expect the market to go higher, but who would say otherwise when you are forced to pretty much stay completely on the buy side? Guess we’ll just have to decide for ourselves this time. Let’s look at the charts.
So as we can see the resistance that was once 1280 is now going to be acting as support now that it is broken. This was fairly strong resistance before it was broken with about nine attempts respecting it. This creates some very technically strong support now that it is broken. Look for the S&P to test 1280; it is a key level of support. Volume is falling with each successive day after the breakout, but three of those four days the price has risen, this combination is quite bearish. If the market moves higher, the next big resistance level to keep an eye on is about 1325.
With earnings season coming to an end, look for the market to focus even more on the fed and economic data. Any big news should create at least a 14 point move as of today.
In terms of geo-political news, Iran has refused to let UN inspectors in their nuclear development sites. In my honest opinion, Iran will break down. If things persist, the UN will eventually have to issue sanction, and what better way than to embargo their oil. Iran, with mostly state owned oil companies, will surely not let this happen. Why you ask, because Iran brings in revenue of about $175,000,000 per day from exporting oil. That’s $63,875,000,000 per year. If they forgo almost $64 billion dollars in revenue a year, the state will surely bankrupt if that occurs, and they well know this.
How would I trade this? Upon any announcement of an oil embargo on Iran, crude oil will surely spike intra day, and probably close that way as well. Personally, I would short sell a small position of USO upon the news or rumor of any serious consideration of a UN oil sanction on Iran. By doing this with a small position I can on the days afterward create an average price slightly above my entry, this is a safety net for if it rises in the coming days, I can still profit from the eventual drop I foresee. After this I would cover my entire position on the news that Iran has agreed to let inspectors in to prevent the embargo.
This trade and my commentary are not recommendations, nor are they advice for your portfolio, and are not intended to be used to help you make or adjust opinions on current market conditions or specific stocks. I am not responsible for any profit of loss you may incur because of reading this article or using the information within it. I am not an NASD licensed professional, and so you must not think I am or use the article I provided as though it was written by one. I am not qualified as someone who can give advice on financial matters, so do not take it as advice, because it is not. This article is for entertainment only, and is not news, advice, recommendations, or any other serious subject matter.
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