The market looks to have an uphill battle this week as it tries to break a two-week losing streak. After ending Friday’s session with a 338 point loss, the Dow is at 8,497 but bulls have to feel deflated after Thursday’s 550 point gain in the Dow did not carry over.

There will be key economic and earnings reports due out this week but the direction we go from here could hinge on what happens with the auto makers. There is talk that they will get a $25 billion rescue package but that is not going to be enough to save them. Even if a bill is rushed through the House and the auto’s get some relief, I still think they are in trouble. Nobody is buying cars these days.

There is some chatter that if General Motors (GM, $3.01) doesn’t get a bailout then the Dow is headed much lower. That really wasn’t hard to figure out because the Dow has been trending lower since the election was settled. The charts have been right on and as we witnessed last week, a test of the lows is inevitable.

The problem with the market is that it has to make a low on its own and the bailout package has just delayed the process of old companies dying and new ones coming aboard. The auto makers are a dying breed and instead of giving them the money for a bailout package, give to the companies who are on the leading edge of technology.

Last week, the Dow lost 5%, while the S&P 500 dropped 6%. The Nasdaq was hit the hardest as the index fell nearly 8%. For the year, the Dow is down 36%, while the S&P 500 is off by 40%. The Nasdaq is down 43%.

Good news will be hard to find and I expect us to start the week lower. November options expire this Friday so there will be plenty of battle grounds being tested.

Rick Rouse
Rick@OptionsMentoring.com

The market is down sharply this morning as concerns related to the government’s $700 bailout package continue. Congress and the White House did reach an agreement over the weekend but it seems that Wall Street is disappointed that is still has to go to vote. The House is slated to vote later today and there is some nervousness in the market.

This is a difficult vote because it comes in an election year and there is a chance that the unpopular bailout package is not approved. President Bush was cheer-leading lawmakers to pass the bill, saying it is needed to “keep the crisis in our financial industry from spreading” across the economy.

There are many provisions that are unknown but one that is known is that the government will be authorized to purchase the assets from some of these financial firms and will help financial institutions to resume lending to individuals and businesses.

There is some heavy skepticism with this bill and that is why the market is being jittery. The Dow is down 275 points to 10,868. The Nasdaq is slipping 85 to 2,100 while the S&P 500 is lower by 40 points and is at 1,172. We should know something in a couple of hours concerning the status of the bill but I don’t expect we are going to see the big rebound everyone was hoping for. In fact, if the bill fails we could get a huge drop in the market.

Rick Rouse
Rick@OptionsMentoring.com

The market bounced back with a solid week despite the fact that oil prices nearly reached a record-high of $128 a barrel. The price of oil seems to be the biggest dominating factor in holding the market down and preventing it from setting new highs. Oil hit $127.82 a barrel on Friday after Goldman Sachs said prices could continue to rise through the end of the year due to thin supply.

There is a bevy of factors that is influencing the price of oil but it still comes down to supply and demand. With larger countries like China and India getting into the mix the demand has helped push prices to record levels. Who knows when oil will retreat but one thing to keep in mind…Memorial Day marks the start of the summer driving season.

Nonetheless the market did manage to put up some decent numbers. The Dow added 240 points, or 1.9% to close at 12,986. The S&P 500 jumped 2.7%, or 37 points, to finish at 1,425. The Nasdaq was the clear winner though, adding 3.4%, or 83 points to finish at 2,528. For the year, the Nasdaq is down 4.7%, the S&P is down 2.9% while the Dow has cut its losses to 2.1%.

Once again, key resistance lies at 1,450 for the S&P 500, 2,600 for the Nasdaq and 13,500 for the Dow. These levels are becoming increasingly difficult to break and some fear a market “correction” is just around the corner. I can’t say I see a “correction” in the cards near-term but I am keeping an eye on the VIX (16.47, up 0.17).

Rick Rouse
Rick@OptionsMentoring.com