Australian (ASX) Stock Market Forum

Best Setups For A Toppy Market

7 August 2010
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The market has been on a one way path for months now, each sell off being negated by another move higher a day later. Yesterday, the markets were selling sharply into the 3:00pm ET time frame, only to have massive buy programs hit to push the markets back higher into the State of the Union address. Today, the markets have inched higher ahead of the Federal Reserve policy announcement on interest rates at 2:15pm ET. While the market seems so resilient, there are cracks in the ice beginning. From yesterdays activity, it was clear the markets wanted to sell off, however, instead the markets were propped up into the close. The SPDR S&P 500 ETF (NYSE:SPY) are currently trading at $129.64, +0.47 (+0.36%).

When this market finally does pull back, it is important to be on board with the correct plays. In addition, it is even more important to find the perfect levels that will maximize your profits on any drop. Apple Inc. (NASDAQ:AAPL) has been one of the hottest stocks in recent years. Their products are number one and spreading throughout the world. However, Steve Jobs has now left the company and people fear competitors will take market share away. The stock level to watch for a pull back at is $350.00. This would be a meager cross of the previous high made just weeks ago. It also represents an even number that will be monumental based on technical analysis. If AAPL should reach $350.00, reward to the short side is at its highest.

Oil has stalled out in the last week, pulling back off recent highs. However, two market leading stocks have continued to push higher. Exxon Mobil Corporation (NYSE:XOM) and Chevron Corporation (NYSE:CVX) have almost propped this market up all by themselves. They have moved higher relentlessly. These are now both high velocity trades in terms of being extended and ready to short. For XOM, anything around $80.00 looks primed for a $2.00-$3.00 pull back and for CVX, $95.00 is the pull back level. This could be good for up to $5.00 on a retrace. In addition, CVX will report earnings this Friday morning before the market opens while XOM will report Monday, before the market opens. At current levels, it is hard to imagine earnings being able to support the price of these stocks much higher.

Watch the Federal Reserve today at 2:15pm ET. My personal guess is the markets close over 12,000 on the Dow Jones Industrial Average. Then look for a pull back starting late this week or next week.

Gareth Soloway