DAILY TRADING ADVISORY 07-July-2009

U.S. service industries, ISM increase to 47, higher than forecasted and the best level in nine months, but markets stood under pressure during all the session but bounce into the end of the day.

ECONOMIC DATA

None

YESTERDAY’S MARKET

Markets traded with losses during the Globex session, the E-mini SP started the day at 885.00, pulled back to 883.75 and bounced to 890.00, then, the index pulled back a couple of points and the rebound reached 891.00. Leaded by the weakness in the Nasdaq the SP pulled back to 887.25 and broke down strongly testing the Globex lows 882.00. After holding, the index bounced to 888.00, pulled back to 885.50, held and tested the 888.00 area once more. After another attempt to push lower that reached 885.00, the SP slowly made its way up to 891.25. The double top gave way to another setback but the move did not gain the downside momentum and the SP held many attempts to trade below 888.00 giving way to another bounce. The SP reached 891.75, and backed off to 887.25. Once more the index held and shorts started to cover pushing the markets up, the SP traded at a new marginal high above the Globex high and with short covering managed to press higher reaching 896.25 into the close. For the day, the SP added2.25 points and settled at 895.50, the Nasdaq lost 4.25 points closing the day at 1441.00 and the Russell ended lower by 6.30 points at 493.60. The Dow managed to close on the green, up 44 points at 8324.

MARKET COMMENTARY AND OUTLOOK

Yesterday I wrote: “Thursday, the index posted a strong sell off and a close near the daily lows. The fact that the strong move happened with low volumes and on the last trading session before the holiday extended weekend may not give to it the validity as it would have occurred during a normal week. That does not means that “it does not shows on the charts” but many time happens that pre holiday moves get reversed during the next trading session. However, the move was very strong and could give way to one or two sessions where it gets consolidated and then move downward to a new low, or just continued to push lower finally showing some follow through. During the past sessions, before the June unemployment numbers which get released last Thursday gave way to the sell off, I wrote that this is a lagging indicator and I would be expecting that even if it gives way to a strong sell off, as it happened, the markets may be able to rebound, so, if the markets will act in this form, and rally during the week, the SP will have to hold above the 877.00 area, a few lows were seen down there during May, so even if last Thursday’s sell off show some follow through I will expect the SP to bounce from that area.”

Markets traded under pressure for most of the session, however, support held, the early lows were not broken and the indexes bounced into the close. I mentioned that after last Thursday sell off, a strong reversal or some bearish consolidation could happen, the ranges were narrow and the indexes traded once more with very low volumes. It seems that the indexes may be able to continue with this pullback, yesterday’s lows, do not seem to have scared too much the long traders, and it will very unusual to place a short term low with such light volumes. It is not that I waiting for a capitulation, but for a low to be in place more volume has to be seen. Also the range on the SP was only 14.25 points and it has to get extended.

The odds favor a trend session, which means that once the daily highs or lows are posted, the markets take a direction showing limited pullbacks or bounces.

I mentioned that last Thursday’s sell off, even with some intraday follow through could have been a pre holiday move that gets reversed the next day, it did not happen yesterday; maybe because the early move was negative and the trading volumes did not produce the momentum for a strong rebound.

So under this uncertainty, and keeping in mind that we could have a trend session, let’s wait for the next 40 minutes to see if lower prices get reversed, in particular from the 886.25-885.00 area, but also wait for a failure around the 898.00 area, if the market is weak that level may hold.

Keep in mind that the Dow showed strong support around the 8200, and that important level will have to get violated if the direction is to the downside, the same is true at 1432.00 on the NQ. Trading below them could indicate a wide range downward session.

TODAY’S SESSION

There is resistance at 896.00-898.00 on the SP, 1449.50-1452.00 on the Nasdaq and 494.10-495.00 on the Russell, if the markets are weak those areas may not get exceeded by much, but if buyers appear, look for a bit more of upside that pushes the indexes up to 900.50-903.00 on the SP, 1448.00-1449.50 on the Nasdaq and 496.00-497.20 on the Russell. Trading above them will place short under extreme pressure and a test of the key levels at 905.50-908.00 on the SP, 1454.00-1455.00 on the Nasdaq and 499.20-500.80 on the Russell may be seen before the session is over.

There is support just below yesterday’s settlements at 894.00-892.00 on the SP, 1436.00-1435.00 on the Nasdaq and 491.20-490.00 on the Russell. If those fail, look for some buying around 890.00-888.75 on the SP, 1428.50-1427.50 on the Nasdaq and 486.40-486.10 on the Russell. If those fail, the last important areas to defend by the bulls are at 886.25-885.00 on the SP, 1415.50-1413.00 on the Nasdaq and 482.40-481.50. Breaking below them could indicate a wide range down session, but the first time the SP test the 877.00 it may hold. GOOD LUCK

TODAY’S SUPPORT, PIVOT AND RESISTANCE LEVELS

S&P

NASDAQ

RUSSELL

Resistance 4

910.75-912.50

1458.50-1460.00

504.90-506.40

Resistance 3

905.50-908.00

1454.00-1455.00

499.20-500.80

Resistance 2

900.50-903.00

1448.00-1449.50

496.00-497.20

Resistance 1

897.00-898.00

1443.00-1445.00

494.10-495.00

PIVOT

891.25

1436.00

491.80

Support 1

894.00-892.00

1436.00-1435.00

491.20-490.00

Support 2

890.00-888.75

1428.50-1427.50

486.40-486.10

Support 3

886.25-885.00

1415.50-1413.00

482.40-481.50

Support 4

877.00-875.25

1405.00-1404.00

478.70-476.80