The markets enter the week with fear bubbling up. The bears seem to be taking control from the bulls after an ugly Non Farm Payrolls report that only saw the creation of 54,000 jobs for the month of May. This clearly shows an economic slowing and investors are jumping ship quickly. While this slowdown seems rapid, it is wise to not get too bearish too quickly. In this Chief Market Strategists opinion, the economy is definitely slowly, but half of the rapid slowdown in jobs in the month of May was due to the Japanese nuclear disaster and the sharp spike in energy prices. The nuclear disaster in Japan should slowly start to recede and energy prices have fallen back to manageable levels. This should help next months economic numbers rebound slightly.  The other portion in calculating the slow down is valid based on the economy adapting to the QE2 money and realizing the money (drug) will be taken away from the markets at the end of June. In addition, the next leg down in housing is clearly in motion and most likely has another 15% to drop before it finally hits bottom in late 2012 and early 2013.

The bearish analysts have been out all weekend. If you believe in psychology of the markets, this may speak of a short term small bounce to get a few more bulls on board early in the week.

The SPDR S&P 500 ETF (NYSE:SPY) ended last week at $130.42. In a shortened four day trading week, this was a drop of $3.09 (2.31%).  When analyzing the SPY from a technical standpoint, the Friday close was below major support at $131.00.  The $131.00 level has stood as a major pivot point since late March. Should another down day occur on Monday, the markets will confirm the break and see a spiral towards $125.50. If the markets can squeak out a gain on Monday, the markets may be able to avoid an ugly short term future and inch higher for the week.

While copper has inched off its bottom of late, steal stocks are still in a free fall. Nucor Corporation (NYSE:NUE) closed last week at $40.40. The stock is down from a high in 2011 of $49.24. This stock is nearing a major gap fill support level at $39.75. This level will likely support the stock in the near term and should give it a nice bounce higher for a week or so. In addition, United States Steel Corporation (NYSE:X) is approaching a major support level as well. 

The bank stocks continue to look as if they have made a near term bottom. This was seen on Thursday and Friday of last week with Wells Fargo & Company (NYSE:WFC) hitting the $26.45 which was major daily support. In addition, on Friday Goldman Sachs Group, Inc. (NYSE:GS) closed the day higher at $135.33, +0.95 (+0.71%) even with the markets taking a hit.  The key stock to watch early in the week is Bank of America Corporation (NYSE:BAC). There is a major level just slightly below its current price. If this level hits, a great long play will be available.

If the market confirms to the downside tomorrow, there are a few shorts available in this market. I will reveal one on the watch list. The stock is Netflix, Inc. (NASDAQ:NFLX). NFLX is a short if and only if it trades through the $300.00 level. This will be the master level and a great play to the downside.

Gareth Soloway
Chief Market Strategist
InTheMoneyStocks.com

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