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Here’s the Deal:

Apparently, the overall desire to sell everything faded quickly on Monday has not returned. That doesn’t mean Thursday’s recovery was enough to give the all clear signal, after all, it is still September. At the end of Thursday it is clear the market has one eye focused on Friday’s non-Farm payroll numbers. A really big number will likely be received like the strength reflected in the Beige Book. The market wants weak economic data that will encourage the Fed to cut rates.

Thursday’s high was almost an exact Fibonacci 62% retracement of the two day pullback. Clearing 13,440 (the 76%) line, will target 13,500. Effectively that will suggest an expected move on up to 13,700 is under way.
But now the witching hour of September year-7 is upon us. From about 9/6 to about 9/12 is a remarkably weak seasonal time for the market. If we are to see a healthy and sustained push up to 13,700, from a seasonal stand point, it has a much better chance of succeeding if it starts in the first half of next week.  

If the bulls are in control and we are going to see some typical seasonal weakness on the back of the employment data, then look for a pullback down towards 13,200, but ideally it should hold above 13,200. Seeing the Dow below 13,200 is a major warning flag and a break of 13,150 will suggest a test of 13,000. If the bulls are in control, prices have no business falling down towards 13,000.

Friday morning we get August Non-Farm Payroll data. A lot of layoffs were announced in the past few weeks, but it is highly unlikely any of them will appear in the August report. Wednesday ADP released data suggesting the BLS number will be light. Also keep an eye on the hourly earnings number. It has been a couple of months since the minimum wage hike and it could spill into the numbers with the potential to upset headline reactions. Going down on Friday will set a negative tone for the first half of the new week.

Here’re the Details:

The Dow was down 30 at its low of 13,274 and it rallied 123 to its high of 13,398 when it was up 93. The Dow closed up 58 at 13,363 in generally light trading.
UTX and HON added a collective 25 to the Dow while HD subtracted 10.

The HUI, AMEX Gold Bugs Index: is on the move rising over 22 points to close at 357.27. It has entered top of the resistance range between 350 and 370. The fact it has push so much higher so fast suggests it will manage to break out on this move.
The HUI is driven by gold (GLD) which staged a major upside breakout today. Like the HUI, GLD has some big time, big-picture upside targets. The current price action of GLD targets $77, and there are some longer-term extension target lines clustered between 90 and 91.

Interest rates have quieted down as we shift into hurry up and wait for the Fed, I mean the data:  The IRX has been near 42 for a couple of days. The employment data has the potential so shake up the debt markets on a near-term basis. The TYX has been moving steadily lower for several weeks so a very minor rebound is due.

S&P 500 staged a low quality rally with a corrective character to it: The SPX is still above its rising trend line, and with the right data it could stay above it.
From a pattern stand point, look for a slide down to 1470 and probably on down to the 1460 area. Should it happen, how fast prices move lower will prove critical as we look into next week. Ideally we will see prices bottom in the first half of next week, above 1450.

The Russell 2000: Nothing changed on Thursday. Resistance is 800 and until we get a solid close above 800, the pattern is vulnerable to a more significant pullback.

Weakness in AAPL didn’t hurt the NASD on Thursday. Its daily trend turned down and that needed to happen. Seeing prices noticeably lower on Friday will argue for additional weakness into the first half of next week, but for now 2600 support is holding strong.

Longer-term cycle dates to consider: There is a longer-term cycle momentum peak on Tuesday September 11. Watch for an important turning point around the 11^th.

There was only one daily trend change. The 3-day trends can turn down on Friday. They last turned up in unison on 8-17 after having turned down on July 20. The last few 3-day trend turns have been good, which is something of a departure from their recent record. Falling below Thursday’s lows will turn the 3-day trends down, which will suggest lower prices into next week.

The Detailed Trend report, CLX Charts, Weekly Trend Signal Count Charts, have been moved to a new location at this link. This link now has a Chart of NYSE 8-day Buying and Selling pressure, plus a few others.

Total breadth was lame at +1194. Total volume contracted to 2.1 Billion shares. Despite the return from the holiday, overall trading activity remains anemically slow. Thursdays are normally slower than Wednesdays but this is a clear case of rallying poorly on lower volume. It looked a lot like a hurry up and wait for some news kind of rally.

The 10-day Up volume line continues to come down while the 10-day down volume line is rising from a very low level. On an 8-day relative volume basis, the buying was never as great as the 10-day line suggested. At the same time, the drop off in selling was much more significant. Right now we still have more buying pressure than selling pressure, a generally positive condition.
5-day down volume lines remain at extremely low levels. In short, since the August low we haven’t seen any indications of increased selling or a real rise in selling pressure. Typically during a counter-trend rally selling will pick up a bit more than what we have seen over the past three weeks.

If the market follows expectations by working lower on Friday, the move should carry into early next week. Ideally the weakness will have an emotional air about it while the under the hood action will carry a conflicting message.
Thinking like a bandit, gap it higher on the news then watch it fade for a couple of days just to disappoint and scare everyone.

Jim Patterson

Most Obvious chart resistance levels: ()
Dow  13,000, 13175,  13,295, 13,350, 13,490, 13,580, 13,630, 13700, 13,825
SPX 1420, 1439, 1455, 1460, 1470, 1478, 1489, 1496, 1504, 1517, 1527, 1535, 1547
NASD 2490, 2500, 2520, 2558, 2580, 2605, 2622, 2649, 2664, 2680, 2700, 2735
NDX 1855, 1895-1900, 1920, 1945, 1954, 1962, 1990, 2000, 2018, 2038, 2056, 2100
NYSE 9189, 9340, 9395, 9470, 9530, 9650, 9730, 9860, 9920 10,000,
RUT-2K 765, 772, 789, 794, 800, 813, 822, 832, 838, 842, 848, 854-856, 861, 876

Most obvious Chart Support levels:
Dow 13,580, 13,400, 13,250, 13,200 - 13,175, 12,985, 12,815, 12,677, 12,547
SPX   1483, 1475, 1470, 1459, 1451, 1444, 1428, 1418, 1400, 1395, 1380, 1360
NASD 2655, 2635, 2606, 2592, 2578, 2570, 2558, 2529, 2498, 2450, 2423, 2400
NDX  2000, 1984, 1956, 1945, 1923, 1896, 1875, 1860, 1838, 1810
NYSE 9800, 9720, 9610, 9560, 9505, 9456, 9308, 9220, 9186, 9025, 8925, 8800
RUT-2K 834, 828, 820, 808- 810, 803, 794, 787-8, 782, 777, 772, 765, 760, 746, 736

Here’s where we are now:

NASD 100 Index (NDX) Trading System, trade the QQQQ:

If we see the expected weakness over the next few days the NDX should still hold above about 1970.  

Long-term 3-peaks and domed house pattern target, 1720.

S&P 500 (SPX) Trading

If it works out as expected, then the ideal buying point will be Monday or Tuesday of next week. It all depends on the character of the expected pullback. If the data comes out right and the SPX thrusts higher off the open, watch the internals for a mid-day downside reversal.  

Tactical Stock Trading Powered by the PRS Stock report

CHINA reported earnings of 8¢ vs. consensus of 9¢. When you miss you miss. $8 was solid support and should now be resistance. After the negative open, CHINA spent most of the day coming back (read: over reaction.) But there are better stocks to focus on.

CHINA rec long 6-14 @ 8.56, stop 8.01, closed at 7.60 à Positioned Closed

BBD rec long 5/31 @ 25.39, stop 23, Target 29.5, closed at 24.64
WFR rec Long 8/22 @ 58.95, stop 54 closing, closed at 58.27
BRLC rec Long 8/24 @ 6.38, stop 5.80, closed at 6.66
NVTL rec Long 9/5 @ 23.81, stop 22, closed at 24.19

** More thoughts on AAPL, a stock I love to hate. One day after announcing $200 price cuts on the iPhone, Jobs announced $100 iTunes credits for the folks that already paid the high price to get a phone. Such are the problems of a fantastic product launch. I am still waiting to see if any analysts have a desire to cut their earnings estimates for the Quarter.  

** PRS Open Actives making noise:

GRA, moderate volume upside breakout above $23.50.

Jim Patterson
Editor
Tactical Trading Outlook

Here’s the Deal:

Despite Wednesday’s setback, the price strength of the overall recovery move is strong enough to suggest a measurable retest of the August lows is less likely. Interestingly, the main message from the Fed’s Beige book would seem in accordance with this expectation. The Beige Book says that outside of housing, which we all know is a disaster right now; the overall economy has continued to expand. It’s that last part that was a bit upsetting for the market. The market really wants a rate cut, but if the economy remains strong then the Fed is less likely to need to cut rates. Thus, the beige book reduced market confidence for a rate cut and it corrected. Provided the expected rate cut is going to happen, then the current pullback should prove temporary.

Now, it wasn’t the morning data that hurt the market. The futures were trading lower (below the cash SPX close) shortly after Tuesday’s close and then got creamed overnight. The 10:00 AM pending home sales figures did knock the market lower, but the slide lower stalled about two hours later. The good news is that while the news was bad, it did not have a terminal impact on the market. From a “reaction to the news” stand point, seeing the market refuse to go down in the face of bad and or disappointing news is constructively bullish.

Despite Wednesday’s setback, which pulled back a bit more than we ideally wanted to see, the 13,700 target remains valid.
Sometimes it isn’t how far a market pulls back as much as it is what it does once it hits the bottom of the pullback. Last night I said below 13,300 is bad for the bulls. That doesn’t really change and the Dow did fall down to about 13,250. However, once it hit the support line, call it 13,250 to 13,300, it stopped cold in its tracks, twice. The Dow broke the near-term uptrend line while the S&P held its similar line.

We were alert for a pullback and that’s what we got. Without the near 100 point gap lower on the open, the action would likely be well within reasonable expectations. The fact the Dow held on after the opening drop is constructive. Seeing the Dow slide below 13,200 will play into the bears hands.

Thursday we get a little more data, but now everyone should be ready for the payroll numbers on Friday before the open.  

Here’re the Details:

The Dow was down 200 at its low of 13,248 and it closed at 13,305 down 143. That is a respectable 57 points off the low of the day.
Interestingly, the three big down movers, MMM, CAT, and AXP accounted for only 32 Dow points. But, 27 of the 30 were down. Wednesday a lot of stocks were down, but most were down a small amount.

The HUI, AMEX Gold Bugs Index: Follow up comment to Tuesday’s HUI forecast. The 525 target for the HUI is a long-term target for the next 12 to 18 months. And, while expected to be reached, the HUI must first breakout above the 350-370 area, the top of its current consolidation range.

Interest rates were beset by the reality of a stronger than desired economy: Weakness in the dollar doesn’t help rates much either. The IRX was down a little, but it is gravitating closer to the 45 – 50 area, which is where the IRX really should be at this time.
Meanwhile, the TYX continued working lower, sliding well below 48 for the first time since May 07.

S&P 500 quickly relieved the near-term excesses: The SPX quickly reached 1470, which is about as much as the bulls can consider normal for a pullback. Though it was rapid, the important thing is the overall desire to sell waned once the SPX reached 1470. Another minor step lower that holds above 1460 is allowable so long as we see some internally divergent readings vs. Wednesday’s readings when it happens.

The Russell 2000: remains confined by that pesky 800 overhead supply area. If the Russell can find the strength to really thrust above 800 we should see a smooth shot up to 840. Ideally a move of that nature would have some volume behind it.
The Russell is working higher in a wedge like pattern. It is a precarious position to be in, but these types of wedges often resolve to the upside. Another solid close above 800 is primarily what is needed.

The NASD had a better day than most indices despite the big decline in AAPL. For the NASD, it was an inside day, which is very normal after an outsized gain as we saw Tuesday. 2600 remains the support line of concern for the bulls and a break of 2575 should send up the red flags.

Longer-term cycle dates to consider: There is a longer-term cycle momentum peak on Tuesday September 11. Watch for an important turning point around the 11^th.

It only took a few hours for the daily trends to turn down, all but the NASD that is. To say the market has become a bit reactionary is something of an understatement. The listed Nothing really spectacular happened with the trends as we were looking for dailies to turn down after a strong run. In addition, it is common to see some minor corrective action after the monthly trends turn down and that is what we have.

The Detailed Trend report, CLX Charts, Weekly Trend Signal Count Charts, have been moved to a new location at this link. This link now has a Chart of NYSE 8-day Buying and Selling pressure, plus a few others.

Total breadth was -2488. That is up from the -3250 low of the day reached before noon. Several indices made lower lows later in the day while breadth did not confirm the subsequent dip.
Total volume increased a little from Tuesday but it was still a relatively slow day at 2.3 Billion total shares. With directional volume solid to the downside we saw a notable pickup in selling pressure, which for now still remains low.

The 10-day AD line remains at an overbought level. It isn’t that the market is overbought that is of greatest importance right now. What is really important is how it handles being overbought. If THE low is in place, then this corrective move should not last for more than three days.

The weekly trend count on the NDX jumped up to 87 at Tuesday’s close. It fell a couple on Wednesday. The thing is, 87 is a very high reading in any market environment (the highest it can go is 100.) The weekly trend counts on the Dow and S&P 500 spiked higher in similar fashion but the NDX is the most dramatic.
Here is why it is important: After a prolonged and or significant move lower, if more than two thirds of the stocks in an index turn their weekly trend up then odds shift significantly in favor of an important low being in place.

When the major trend is down it is uncommon for a significant number of stocks to recover enough to turn their weekly trends up. Major down trends tend to be persistent across a large number of stocks making it extremely difficult for that many to rally that much.
Note the divergent weekly trend count at the August 16 low vs. the early August low. This divergence is clear on the Dow and S&P 500 too. Internally the market is behaving remarkably well despite the low volume environment.
In June 06 (red arrow) a nearly similar situation developed, but ultimately a lower low was reached. One key difference is there was no internal divergence at the preceding low as we have now.

Even with Wednesday’s pullback, which could easily continue for a couple more days, I am growing increasingly optimistic. I am confident you have seen some of the parallels to a particular year-7 September, like 1987. The fact so many are thinking along those lines suggests a similar outcome is highly unlikely. Second, internally the market is showing much better action than I expected, despite the low volume conditions. Stocks are still having difficulty really breaking out to the upside, but at the same time, many stocks have rallied beyond the “point where one would expect them to fail.”

If the move up from the August 16 low is a counter-trend move then we should be at or very near or at its end. While Wednesday was a solid down day, unless we see some serious downside acceleration, in terms of the internal character, this pullback is more likely to be short lived.

What the bulls really need is to see the market shake off some really negative news and finish the day strong. Once bad news no longer has a negative impact it signals the issues have been discounted and the market has moved on to new things.

Jim Patterson

Most Obvious chart resistance levels: ()
Dow  13,000, 13175,  13,295, 13,350, 13,490, 13,580, 13,630, 13700, 13,825
SPX 1420, 1439, 1455, 1460, 1470, 1478, 1489, 1496, 1504, 1517, 1527, 1535, 1547
NASD 2490, 2500, 2520, 2558, 2580, 2605, 2622, 2649, 2664, 2680, 2700, 2735
NDX 1855, 1895-1900, 1920, 1945, 1954, 1962, 1990, 2000, 2018, 2038, 2056, 2100
NYSE 9189, 9340, 9395, 9470, 9530, 9605, 9730, 9860, 9920 10,000,
RUT-2K 765, 772, 789, 794, 800, 813, 822, 832, 838, 842, 848, 854-856, 861, 876

Most obvious Chart Support levels:
Dow 13,580, 13,400, 13,250, 13,200 - 13,175, 12,985, 12,815, 12,677, 12,547
SPX   1483, 1475, 1470, 1453, 1444, 1428, 1418, 1400, 1395, 1380, 1360
NASD 2655, 2635, 2606, 2592, 2578, 2570, 2558, 2529, 2498, 2450, 2423, 2400
NDX  2000, 1984, 1956, 1945, 1923, 1896, 1875, 1860, 1838, 1810
NYSE 9800, 9720, 9610, 9560, 9505, 9456, 9308, 9220, 9186, 9025, 8925, 8800
RUT-2K 834, 828, 820, 808- 810, 803, 794, 787-8, 782, 777, 772, 765, 760, 746, 736

Here’s where we are now:

NASD 100 Index (NDX) Trading System, trade the QQQQ:

The NDX is on a roll having advanced over 100 points in less than a week. It is a low volume move, but we have gone through a time when we should expect low volume.  

Long-term 3-peaks and domed house pattern target, 1720.

S&P 500 (SPX) Trading

Despite the setback, at this point we can’t call a one day pullback Big near-term weakness. After all, we were expecting a corrective pullback. This pullback should prove temporary, but that doesn’t mean we can relax, after all, it is September.

Tactical Stock Trading Powered by the PRS Stock report

BBD rec long 5/31 @ 25.39, stop 23, Target 29.5, closed at 24.60
CHINA rec long 6-14 @ 8.56, stop 8.01, closed at 8.49
WFR rec Long 8/22 @ 58.95, stop 54 closing, closed at 57.90
BRLC rec Long 8/24 @ 6.38, stop 5.80, closed at 6.66
NVTL rec Long 9/5 @ 23.81, stop 22, closed at 23.90

New Buy Recommendation, NVTL. NVTL thrust higher today pushing up to $24. In August NVTL reported strong earnings and there is no evidence in hand to suggest that NVTL has missed a beat. The stock corrected with the market and is rapidly recovering. NVTL is a new buy recommendation @ 23.90. We will use a stop price of $22.00. Note, the stock was up big on Wednesday; you way want to look for a slight pullback to “get in.”

** My thoughts on AAPL, a stock I love to hate. AAPL was hit hard on Wednesday despite a slew of new product announcements. The main issue for the weakness really relates to the price cuts on the iPhone. My issue with the iPhone has not been with its potential to succeed. My issue has and remains with AAPL’s ability to manage product margins with a constantly contracting product price cycle. While the may have been making lots of money at the original price points, it will be difficult to maintain margins with the new price cuts. Time will tell on this one.

** PRS Open Actives making noise:

Best of the best, stocks with PRS Rankings of 97 or higher at 3, 6, and 12-months -- Blue highlight = current IBD 100 stock.

Jim Patterson
Editor
Tactical Trading Outlook