Here is the Deal:
Monday was a lot weaker than it seemed. Bottom
line, we were looking for additional corrective action at the
start of the week and despite what the Dow would have us
believe, Monday was a corrective day. Just look a the internals
and you will see that on balance it was a weak corrective type
day as anxiety builds before the torrent of earnings and
economic reports due over the balance of the week.
The Dow is flirting with 14,000, just above
the top of the Fibonacci range at 13,965. 13,875 remains the
first meaningful level of support. A notable break there
targets the 13,775 area. With the action on Monday, I am
suddenly wondering if we are going to see a repeat of the
second half of April, which was a somewhat complicated period
for the broader market.
From a pattern stand point, the move higher
from last Wednesday’s lows looks complete. That means a
corrective move that tests mentioned support levels is likely
to take place in line with the very short-term cycles discussed
below.
Tuesday morning we get PPI and a plethora of
earnings with a couple of Dow components and MER, which will be
interesting in light of sub-prime issues. The news will set the
tone for the day.
Here’s why:
The Dow was down 12 before rallying 94 to its
high when it was up 81 at 13,989.11. It closed up 43 at 13,972,
about 38 points off the days high. The Dow did not move in line
with the broad market and UTC and VZ accounted for 20 points of
the Dow’s gains.
Interest rates fell back to the bottom
of the developing wedge pattern ahead of the PPI report. While
we expect continued choppy action, trend lines are trend lines
and if bonds react positively on Tuesday to the PPI data, the
next level of importance for the TYX (51.26) is just below
50.00.
S&P 500 reached another new all time high
but couldn’t hold the gains: The simple fact is, there is
significant overhead supply for the S&P 500. Folks just don’t
think the S&P 500 should be above its 2000 high and when it
pushes into that area folks want to sell it, or at lease for
now, they don’t want to buy it. This is common behavior around
an important old high. It just takes time to work through them.
On a very near-term basis the SPX is working through a
consolidation phase. 1541 remains the support level to watch.
However, Monday’s action established a minor support line at
about 1546. That is only a five point difference, which is
really just one program sell hit away.
Earnings and economic data will set Tuesday’s early tone. As
far as the very short-term cycles go, I can argue for a very
minor low due between now and Tuesday afternoon. We are still
watching / targeting the Fibonacci target range of 1560 to
1565.
The Russell 2000 never confirmed any of
Monday’s strength: With breadth negative from the start,
the Russell was under pressure and it challenged support at
848. At the end of the day, the RUT has run into a ceiling of
supply. Folks have all the confidence in the world when it
comes to the mega cap stocks while the little old Russell 2000
stocks continue to get ignored. Resistance remains 855 while
the Russell did hold at the key 848 level on Monday. A 62%
retracement would be down to 842, but I have to confess, with
the rest of the indices holding up as well as they are and the
overall breadth readings, seeing the RUT slide much below 842
will become highly unsettling during this options expiration
week.
The NASD is holding its own. In fact, holding
support at 2693, about in line with Friday’s lows, leaves us
with a text book wave 4 type pullback. The catch is prices need
to spring higher now or lower support between 2680 and 2685
(another wave 4 level and the Fibonacci 38% retracement line)
will come into play. The belief is that we are in a strong
upward breakout. If that is the case then any correction should
not be more than 38% and or should hold at a lower degree wave
4 low.
Two of five daily trends turned down on
Monday. All in all, that is probably more constructive than
destructive at this point as it signals a measurable correction
is taking place after the strong run up last week.
Detailed Trend Report on Web &
CLX Count and Weekly Signal Counts &
NYSE & NASD 5-day up and down volume charts
Total breadth was -2139. That is extremely
negative considering the Dow and S&P were up on the day. It
comes back to index buying rather than committing to individual
stock names. With total volume about even with Friday and solid
to the downside, there is no mistaking the fact that Monday was
much weaker than the indices would have us believe. However,
despite very negative breadth readings, the market wasn’t down
much, so at this point we have to say that folks did a little
selling in a lot of names, and then took those dollars and
bought the major index stocks, or the ETFs.
By the way, MSFT has traced out what I like to
call a frying pan pattern. Think of it as a cup with handle
formation, but the handle is large like on a frying pan. The
point being, MSFT is on the verge of staging an important
upside breakout after establishing a very short-term higher
low.
Monday’s action allowed a couple of the 5-day
RSI metrics to come down a bit, but they are still high.
Internally the market remains overbought but
the condition is still better described as undersold as the
5-day and 10-day down volume metrics remain very low.
We were looking for a slow start to the week.
While the Dow put on a show to keep everyone in an upbeat mood,
the truth is Monday was pretty slow and overall it was a down
day for the market. A quick scan of earnings after the close,
stocks in down trends reported bad numbers while stocks in up
trends seem to have done OK.
With the PPI and Merrill Lynch earnings before
the open (est. 2.01) we certainly have the makings of a big day
on Tuesday. Looking at the balance of July, we need to see a
noticeable pickup in buying and buying pressure for this move
to continue.
Jim Patterson
Most Obvious chart resistance levels:
()
Dow
13,580, 13,620, 13690, 13,775, 13,845, 13,950,
14,030, 14,160, 14,350
SPX
1526, 1535, 1542, 1546, 1551,
1562, 1613
NASD
2605, 2629, 2652, 2662, 2672, 2715, 2735,
2745
NDX
1957, 1961, 1972, 1982, 2000,
2024, 2057, 2100, 2142
NYSE
10,000, 10,020, 10,060, 10,120, 10196, 10266,
10,363
RUT-2K
826, 832, 838, 842, 847, 854-856, 861,
876
Most obvious Chart Support levels:
Dow 13,875
13,760, 13,660, 13,580, 13,520, 13,480, 13,350, 13,280,
13,050
SPX 1541, 1535,
1526, 1518, 1504, 1496, 1487, 1483, 1475
NASD
2691, 2670, 2655, 2640, 2625, 2602, 2586, 2565,
2558, 2548, 2525, 2480, 2455
NDX 2017, 2000, 1973,
1965, 1948, 1934, 1920
NYSE
10,200, 10,125,
10,000, 9940-60, 9820, 9720, 9690, 9510, 9400, 9350, 9280
RUT-2K
848, 844-846, 838,
836-3, 828, 820, 808- 810, 803, 790, 760
Here’s where we are now:
NASD 100 Index (NDX) Trading System,
trade the QQQQ:
The NDX pushed towards the 2040 line before
pulling back. 2017 remains the key level to watch on any
pullback. For some reason I think the news is going to play an
important roll in the action this week. The point being, if the
NDX slices through 2017, you might want to be somewhat quick to
book very short-term trading gains.
S&P 500 (SPX) Trading
We went long the SSO on Wednesday 6/13 on the
back of the Rare Buy signals with an entry price of 94.42.
Entry #2 @ 93.00
The SSO closed at 99.99
Well, at the end of the day, the SPX is
consolidating, which is what we were look for / expecting. With
that we should be near a very short-term low that holds near
current levels with higher prices to come over the balance of
the week.
CHINA, did it get ahead of its self or was
that a little blow off as it filled its gap? Time will tell.
BBD rec long 5/31 @ 25.39, stop 23, Target
29.5, closed at 27.60
CHINA rec long 6-14 @ 8.56, stop 8.01, closed at 9.48
SVVS rec long 6-28 @ 50.55, stop 47.75, target 59, closed at
48.35
**
PRS Open Actives making noise:
GROW made a nice move higher on Monday breaking just
about all the near-term down trend lines once can reasonably
draw on the chart. GROW has been in a very large and long
consolidation pattern, but generally speaking, the bottom of
the consolidation has held above the long-term uptrend line.
Jim Patterson
Editor
Tactical Trading Outlook
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