DAILY TRADING ADVISORY 08-July-2009

Markets sell off on earnings and economy recovery concerns.

ECONOMIC DATA

10:35 AM Crude Inventories

3:00 PM Consumer Credit

YESTERDAY’S MARKET

After trading at 898.00 during the Globex session, markets started the day under light pressure. The E-mini SP started the day at 892.25 and after testing 893.00 it started to trade down. The first move pushed the index down to 889.25 from where it bounced back up to 892.50 but with the Nasdaq pressing strongly lower, the index sold off and reached 886.75, just below my 888.00 intraday support level. Without showing any rebound the SP made a new low at 883.25. A feeble bounce to 885.50 failed to gain momentum and the index made a new low at 882.25. Finally some short covering was seen and the SP reached the key support area and now resistance at 888.00. After failing there the markets moved once more to the downside, they traded sideways and finally broke to new lows, the index reached 878.00, as expected, and the first test hold, the SP bounced to 881.00 from where it pushed lower posting a new daily low at 875.25 bouncing a bit into the close. For the day, the SP lost 16.25 points and settled at 879.25, the Nasdaq lost 33.00 points and finished the session at 1408.00 and the Russell ended lower by 9.30 at 484.30.

MARKET COMMENTARY AND OUTLOOK

Yesterday I wrote: “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. 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. 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.”

Markets acted exactly as expected, the Globex high on the SP was at 898.25 and the rebound was rejected before the opening, my downside objective, mentioned a few days ago was reached in a down trend session. The markets broke the June lows and reached those posted on May.

The SP and Dow have formed a head and shoulders pattern and this indicates a down swing to test the 7800 area on the Dow and 838.00 on the SP. Despite the fact that we could see some rebound during today’s trading session, it may be only a one day move just to give some extra opportunity to the sellers to jump in.

Take into account that my 878.00-877.00 area held into the close, and the close on the SP500 index was practically at the low, so the may have given short term exhaustion to the recent sell off. The strength of the trend is obvious; the last rally struggled, failed at the price level where the previous setback started, at 925.00, has a six days extension and was strongly reversed in a few sessions, so there is not a reason why the markets wont push lower in the near term.

For today’s trading session, we have the Crude Inventories data after the opening, the commodities have retreated following the stock markets indexes, so a bounce on the oil may benefit the SP. An early pullback to yesterday’s lows, if it posts a double bottom, may give way to a rebound, but it will be very difficult for the markets to gain upside momentum, and any rally may turn to be a selling opportunity. Take into account that it will be unusual to see another trend session.

TODAY’S SESSION

There is resistance at 896.00-898.00 on the SP, 1412.00-1414.50 on the Nasdaq and 485.60-486.90on the Russell, those may get exceeded, in particular if the early move push markets down to yesterday’s lows, if that happens, the indexes may make it to 886.75-888.50 on the SP, 1418.00-1420.50 on the Nasdaq and 489.90-492.10 on the Russell. Many traders may be waiting to short at those levels, but if the short covering continues look for a test of yesterday’s early highs at 892.00-893.25 on the SP, 1425.00-1427.00 on the Nasdaq and 495.10-496.50 on the Russell.

There is support at yesterday’s lows at 877.00-875.00 on the SP, 1402.00-1399.50 on the Nasdaq and 482.00-480.40 on the Russell. Failing there may add some downside momentum pushing the markets down to 872.50-870.00 on the SP, 1394.50-1392.00 on the Nasdaq and 474.20-472.60 on the Russell. Markets may bounce from those levels ones they get tested the first time, but if those do not hold, especially during the last hour of the session look for the indexes to visit 866.00-865.00 on the SP, 1383.00-1381.00 on the NQ and 474.20-472.60 on the Russell before the session is over. GOOD LUCK.

TODAY’S SUPPORT, PIVOT AND RESISTANCE LEVELS

S&P

NASDAQ

RUSSELL

Resistance 4

898.00-899.50

1433.00-1436.00

499.60-501.20

Resistance 3

892.00-893.25

1425.00-1427.00

495.10-496.50

Resistance 2

886.75-888.50

1418.00-1420.50

489.90-492.10

Resistance 1

881.50-883.50

1412.00-1414.50

485.60-486.90

PIVOT

884.25

1418.50

487.00

Support 1

877.00-875.00

1402.00-1399.50

482.00-480.40

Support 2

872.50-870.00

1394.50-1392.00

478.60-476.80

Support 3

866.00-865.00

1383.00-1381.00

474.20-472.60

Support 4

861.25-860.00

1375.00-1373.00

467.10-466.70