Last week

Well, it was fun while it lasted. The S&P500, the large-cap index, had a nice little mid-summer rally going at the start of the week, up about 90 points in eight days, moving from the low end of the three-month channel to make a two-month high last Monday, just a couple of points below the all-time record. Sweet summer.

And then it fell apart. There were new concerns, based not on events in Greece but in China, where the Chinese government announced figures for its gold holdings which were disappointingly low, and Chinese markets slumped, despite heroic measures to revive them. In the US, a number of large-cap heavyweights reported crummy earnings, and the Fed continued to hint at a rate increase in the Fall.

That was it. The S&P 500 cash index ($SPX) closed at 2079.65 on Friday, down 46.99 points for a 2.2% net weekly loss. After Monday’s dreams of glory the index didn’t have another winning day all week, and closed almost exactly at the 62% Fibonacci retracement (see chart).

“It will not always be summer,” the Greek poet Hesiod, said to be the first economist, warned us 3,000 years ago. “Build barns.” Indeed.

This week

We see more volatility looming this week. The Fed is scheduled to make an announcement about a possible rate increase on Wednesday, there are more Q2 earning reports to be digested, the economic calendar is loaded with important economic reports … and it is the last week of July, with the usual end-of-month shenanigans.

The index could go easily go in either direction. We’ll be watching to see if the weekly/monthly closing price is under the last two week’s low. That could confirm that the summer rally is over, and the move to the downside is underway.

Toda

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There was strong selling Friday on the S&P500 mini futures (ESU5) and that produced a short-term oversold condition, so we may see a little bounce today, especially if the futures don’t fall below Friday’s low in overnight trading.

The 2090.50-88.75 area will be the first major resistance today. As long as this resistance prevents the ES from advancing, the market is likely to swing to the downside. The unfilled gaps at 2069, 2041.25 and 2039.25 are the likely targets if the sell-off resumes.

Major support levels for Monday: 2065-62, 2054-55, 2043.50-45.50, 2038-35;
major resistance levels: 2134-36.50

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Chart: S&P500 cash index ($SPX) July 24, 2015