ROLLOVER DAY IS TODAY THURSDAY, MY NUMBERS ARE STILL BASED ON THE JUNE CONTRACT

Commodities and Global stock market advances resulted in a strong opening for the U.S. equity indexes that get sold and reached a neutral level into the close. U.S. trade deficit widens as exports slumps to lowest level in three years. Citigroup began exchanging $58 billion of preferred securities into common stock; Home Depot raises full year earnings expectations. Treasury declines as Russia said it may reduce reserves held in U.S. debt. Ten year treasury bonds hit eight month high. Fed’s Beige book says that recession may be moderating but weakness in the labor market persists.

ECONOMIC DATA

8:30 AM Initial Claims

8:30 AM Retail Sales

8:30 AM Retail Sales ex- auto

10:00 AM Business Inventories

YESTERDAY’S MARKET

After trading sharply higher during the Globex session, the E-mini SP started the day at 950.00 and pulled back from 950.50 testing lower levels at 946.50 and then at 944.25. After bouncing to 947.00, the index continued to trade under pressure and tested 939.50. The SP bounced back to 942.50 just to push down to a new low at 938.00. The SP tried to get back above the 940.00 area, which has been pivotal during the last sessions, but unable to do it, it continued to trade lower reaching 936.00. The SP bounced to 941.00 but failed to gain the upside momentum needed for a recovery. Once the SP traded back below the 940.00 area and broke the 933.00 level, the downside gained momentum pushing the index to 927.00 from where a rebound reached 932.50. After sitting above the 930.00 the index managed to reach 935.75. The SP pulled back to 931.00, traded sideways, bounced to test the last high and broke above it reaching 936.50., then, the index pulled back a few points and rallied to 941.00 into the close. For the day, the SP added .75 points closing the session at 940.25, the Nasdaq lost 5.00 points and settled at 1495.50 and the Russell lost 1.40points ending the session at 525.20. The Dow lost 24 points finishing the day at 8739.

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MARKET COMMENTARY AND OUTLOOK

Yesterday I wrote: “Markets continued to consolidate keeping a strong position and upward bias. The recent action and the size of the attempted pullbacks makes me think that the markets may be able to push higher and post new highs in the next coming sessions. However, multiple closes around the same level also shows a lack of buying, there is not selling, but there is not new buying coming into the markets. So, uncertainty and more of the same may be seen, but the pattern may get resolved today after the Fed’s Beige Book gets released. Also, the rollover from the June to the September contract which kept traders concentrated on it and probably will keep them busy during today’s session, may made difficult for the markets to post the next important move. The SP has been able to hold the sell off attempts and it has managed to maintain the 918.00 level, but if that index won’t get its foot going, then a wide range negative session could be seen. But for now and until the pattern of trading gets resolved, trading both sides of the range sounds good, obviously, the upside bias could get strong momentum once the SP closes above the 950.00 level. The Nasdaq looks more bullish but the most recent highs still continue to be an obstacle, if that index can maintain its leading position, it should help the other markets to move up.”

Once more, the SP closed around the 940.00 area. Yesterday’s wide upside opening gap and Globex lower daily high may had the appearance that exhausted the rally. One of the ways that markets post a top is by a wide higher opening, an upside gap, that get reversed, we have discussed that many times in our newsletter and it is a valid pattern to exhaust a trend.

Yesterday I wrote that the lack of buying was a red light in the current rally, an once the SP repeated the same trading pattern that happened last week when the index reached during the nightly session the 956.50 area just to get sold off during the regular trading hours session, so for now, the market has printed a double top that certainly, looks like a short term high. The multiple closes around the 940.00 area and the failure of the SP to close above the November and January highs where obvious resistance exist, has become a real obstacle for the rally to continue.

On the other side of the coin, the uptrend remains intact all the time that the SP holds on the close the 918.00 area, this is valid also for the Dow above the 8600, and for now, all the sell offs has been met with buyers ready to jump in to the markets. So until this happen, chances for higher prices still exist, obviously, once the highs get broke.

I am not a trader who believes in triple tops, the markets have showed me that most of the times when an index reaches the same level for the third time, it probably will break above it, and the fact that today, the SP reached almost last week high, has invalidated the probability of a false break, so if we have a top, is a double one and not a break that left late longs trapped.

What happens today will be very important, if the markets show some follow through to the downside, then the uptrend may be in jeopardy, but only a sell off that last for most than three consecutive session will give certainty to this scenario, also, two closes below the 918.00 area that o mentioned.

With this uncertainty and with the pattern of trading unresolved, I still believe that the markets could move higher and reverse yesterday’s moderate losses, so for today’s trading session I will try to stay on the long side all the time that my screen is showing the green, but we may see more sideways action before the pattern gets resolved.

TODAY’S SESSION

There is resistance at 943.00-944.00 on the SP, 1499.00-1501.50 on the Nasdaq and 527.10-528.00. Trading above them will push the markets up to 946.50-948.25 on the SP, 1506.50-1508.00 on the Nasdaq and 529.90-530.90 on the Russell. Those area key, if the trend pattern will get resolved to the upside, the markets will have to break above them and reach 952.00-954.50 on the SP, 1516.00-1518.00 on the Nasdaq and 533.70-535.20 on the Russell. Only if a triple top is posted around those areas the rally may have been completed.

There is support at 937.50-935.50 on the SP, 1491.00-1489.00 on the Nasdaq and 523.20-521.40 on the Russell. If the markets will rally strong, those MUST hold but if the trend is more of the same, then look for a test of 932.50-931.00 on the SP, 1483.00-1480.50 on the NQ and 520.10-519.50, if those can not hold, then yesterday’s sell off may get repeated pushing the markets down to 926.50-925.00 on the SP, 1475.00-1473.00 on the Nasdaq and 516.60-515.40 on the Russell. GOOD LUCK.

TODAY’S SUPPORT, PIVOT AND RESISTANCE LEVELS

S&P

NASDAQ

RUSSELL

Resistance 4

959.00-961.00

1529.00-1531.00

540.70-542.10

Resistance 3

952.00-954.50

1516.00-1518.00

533.70-535.20

Resistance 2

946.50-948.25

1506.50-1508.00

529.90-530.90

Resistance 1

943.00-944.00

1499.00-1501.50

527.10-528.00

PIVOT

940.75

1495.50

525.10

Support 1

937.50-935.50

1491.00-1489.00

523.20-521.40

Support 2

932.50-931.00

1483.00-1480.50

520.10-519.50

Support 3

926.50-925.00

1475.00-1473.00

516.60-515.40

Support 4

921.00-919.75

1468.00-1465.50

513.70-511.50