by Dennis G. Cajigas

The driving force behind weakness in the stock market over the past month is a growing lack of confidence in the global economic outlook. I think we should see some stability in the stock indexes in June, but it may take some time before investor confidence can be restored.

There is a strong possibility of a rebound in June, but it would take several conditions to be met. I expect sideways to lower action in the near-term.  In mid-April, the S&P futures were trading above 1,200, so we’ve seen pretty big pullback. One word sums it up: stability. If we can find stability restored in the eurozone and in certain sectors of the U.S., it would boost confidence for investors and traders to step back in. As we approach lower levels, we should find value buying, but a larger rebound may take some time.

Technically, the market needs to hold key support. I see a possible downside target for the S&P futures at the 38 percent Fibonacci retracement at 1,020. If we find buyers come in above that level, that will clear the market to move back to 1,050 or higher.

Last week’s U.S. employment report was perceived as gloomy. The market didn’t react well to the report, as the majority of the 431,000 gain in non-farm payrolls were attributed to temporary Census workers. But the job numbers were more reassuring if you take the past two months into account. In addition, the unemployment rate, which is a more comprehensive measure of employment, fell to 9.7 percent, indicating employment overall is increasing.

The problems in the Eurozone are weighing on the U.S. economy. Investor confidence is shaken, and concern about contagion to other countries outside the “PIGS” nations is growing. Hungary is the latest to drive concerns the financial crisis may deepen, as it warned it may also be facing a possible Greek-style debt crisis.

The markets have been volatile, and volatility in the markets can cause a lot of fear. As a result of this fear, I think gold should continue to act as a safe-haven when negative news hits. I expect gold to press to continue to press to new highs in the next six months. If you are bullish gold, I recommend entering positions on momentum with a stop above $1,255. If you are trading gold on the safe-haven idea, I would look to take profits on long positions when you see the euro/U.S. dollar cross begin to normalize. You could also consider exiting your gold positions when the Federal Reserve begins to signal through its verbiage that it is inclined to start increasing interest rates. This would represent a shift from its current accommodative fiscal policy.

Volatility can be your friend as a trader; you can make it work for you. I expect the volatility to calm a bit this summer. From an economic standpoint, the U.S. is reasonably stable; it’s mainly the situation in the eurozone that is driving fear and concern. As the news gets old, investors won’t be as shocked.

Deflation
As a result of the shaky global outlook, I think deflation is a bigger concern than inflation. I don’t expect any interest rate increases from the Federal Reserve anytime soon. I don’t believe we’ll see a rate hike until the first quarter of next year, and inflation shouldn’t be a concern for at least the next six months.

Please feel free to call me if you have any questions about the markets, and to develop a customized strategy based on your unique situation.

Dennis G. Cajigas is a Senior Market Strategist with Lind Plus, Lind-Waldock’s broker-assisted division. He can be reached at (866) 631-6216 or by email at dcajigas@lind-waldock.com.

Futures trading involves substantial risk of loss and is not suitable for all investors.

Past performance is not necessarily indicative of future trading results. Trading advice is based on information taken from trade and statistical services and other sources which Lind-Waldock believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades. All trading decisions will be made by the account holder.

© 2010 MF Global Holdings Ltd. All Rights Reserved.

Dennis G. Cajigas is a Senior Market Strategist with Lind Plus, Lind-Waldock’s broker-assisted division. He can be reached at (866) 631-6216 or by email at dcajigas@lind-waldock.com.

Futures trading involves substantial risk of loss and is not suitable for all investors.

Past performance is not necessarily indicative of future trading results. Trading advice is based on information taken from trade and statistical services and other sources which Lind-Waldock believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades. All trading decisions will be made by the account holder.

© 2010 MF Global Holdings Ltd. All Rights Reserved.