The whipsaw seen during the last trading week was fustrating for both the bulls and bears, as both sides are forced to take shorter duration trades to adapt to the market. There are convincing arguments for both sides of the market now. The long- stronger corporate profits in US, undervalued stocks. The short- non-sustainability of yet another US bailout; Euro collapse, global recession.
In my opinion, this is still a range bound market until both extremes have been tested with significant chart patterns. The short term volatility will continue to kill traders unless very wide stops are used. For now, the market seems inclined to break below 2825 support. A persistent sell off from here will see the market testing 2700 lows again. The USD is experiencing a rally, which traditionally causes the market to sell off. Hence we do have a downside bias, but i think one needs to exercise caution in initiating new shorts.
Friday's non-farm payroll disappointed the markets, triggering more than 200 points dip for the US market. S&P fell back down below 1183 support but on significantly lower volume. There is still plenty of uncertainty and any of the cards (US Bank Failure, Greece, US economy) can potentially trigger yet another round of sell down.
For STI, the earlier days of the week is likely to be down, and i suspect the recent uptrend support will be tested. Watch for a break below the support on heavy volume- if the day closes back positive, this is a bullish signal. The reverse scenario will be a retest of the 2700 lows. The outlook for next week is certainly not bullish yet, hence i reiterate sideline or short.
The next act should be unveiled soon if QE3 takes the headlines. The move should be viewed positively by the market as it creates more liquidity (or take some water out of the sinking boat) for a while longer. In summary, for the aggressive, get short. For the risk adverse, wait for a buying opportunity for the next rebound.