Mercenary Trader | May 01, 2012 12:30AM ET
Last week’s broad market rally puts us at an interesting crossroads… Auto-Makers Backfire
While the primary bullish trend lines were clearly broken earlier in the month, the price action has rebounded – putting key indices back above important EMA support areas.
But at the same time the market has been pushing higher, the fundamental data has been less than encouraging. The first quarter GDP report came in at 2.2% annual growth – well below expectations – as business investment showed particular weakness.
This “bad news” was essentially shrugged off by equity traders, who saw the weakness as a great opportunity for the Fed to renew its promises of ample liquidity with essentially zero interest charges for the foreseeable future. Incidentally, Treasuries posted their 6th straight positive week despite a modestly more “hawkish” FOMC announcement this week.
Midway through April, we had the chance to take a solid shot on some attractive R (reward to risk) bear scenarios. A few of these trades resulted in quick profits. And a few hit our tightened risk points during the rally last week.
The net result is that our overall exposure has been whittled down quite a bit in response to the market environment. This type of situation is normal. There are times when you get the chance to step on the gas, and then quickly have to maneuver around new obstacles.
Considering the cross currents that were introduced last week, the waters are a bit more muddy for short-term trades. At the same time, there are a number of sectors and industries that look very promising. More data this week in the form of earnings announcements and economic reports should help to clarify the action – giving us opportunities to set up new trades along the way.
Below are some of the area’s we’re watching this week…
During the conference call, management stated that “April has been challenging.” Considering the fact that the stock has already broken below a key support area, this bearish fundamental data didn’t help the bull’s case at all.
After drifting higher early in the week, Ford reversed sharply – setting up a great bearish continuation pattern.
The bearish environment is confirmed by the price action in General Motors (GM), as well as key supplier Goodyear Tire & Rubber (GT). Goodyear expects weakening volume as the company adopts a strategy to focus on premium tires – and investors interpret this to mean the company is finding less demand for its “standard” lines.
Risk management is the name of the game this week. We’re managing our exposure carefully while still keeping an open mind for potential entries in attractive sectors.
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