Initial Claims higher than expected at 627K, Continuing Claims at 6.73 million and the 1Q GDP final numbers at minus 5.5%; Bernanke says Central Bank acted with “highest integrity” in Merrill deal. Markets rallied strong.

ECONOMIC DATA

8:30 AM Personal Income

8:30 AM Personal Spending

8:30 AM PCE Core

9:55 AM Michigan Sentiment-Rev.

YESTERDAY’S MARKET

After trading higher during the Globex session in which the SP reached 908.50, the markets opened lower. The E-mini SP started the session at 892.50 and bounced to 894.50, it broke higher and rallied all the way up to 905.50 where the move lost its momentum. With good support above the 900.00 level, the SP pulled back to 901.00, bounced to 903.75, pulled back to 902.00 and pushed higher breaking above the Globex high reaching 910.50 and then 914.75. Finally the rally stalled and the market traded in a sideways pattern but without selling coming into the markets, the SP pushed up to 917.75. The SP pulled back to 914.00, held, pushed lower to 910.50 bouncing back to 915.00. During the last minutes of the session, the SP broke below 910.00 and rapidly recovers and closed near the daily highs. For the session the SP added 18.50 points and settled at 916.50, the Nasdaq gained 25.75 closing the day at 1473.00 and the Russell advanced 12.70 points closing at 505.70. The Dow also posted a solid rally with a 172 points gain closing at 8472.

MARKET COMMENTARY AND OUTLOOK

Yesterday I wrote:”After Monday’s downtrend session where the daily highs were done at the opening, the normal Tuesday’s narrow range session where markets consolidated the previous day sell off and yesterday’s early rally in front of the FOMC policy statement and rate decision and late sell off attempt that managed to hold above the weekly lows, markets may have found a short term bottom. Just seven days ago I wrote about the probabilities to test the 887.00 area on the SP, which was after the indexes posted triple tops and intraday failures to hold their gains, the weakest of the indexes, the Dow; after this area was tested on the SP, it is probable that the profit taking will hold, and the markets will keep a neutral position in front of the end of the 2Q, fund manager have to show something better than three months ago. At the moment that I am writing my newsletter, markets have a nightly rally, the 907.00-908.00 areas on the SP, and the 918.00 level which showed strong resistance during the last week will have to get exceeded in the next 48 hours if that markets wants to deal with the 924.00-926.00 band from which the last sell off started, until that, there is a chance that instead of moving higher, this market will consolidate for a few days and then resume the downtrend, obviously all the time that the index holds this week lows, the markets area OK, but the other main markets, leaded by the Nasdaq will have to join the rebound and show some follow through to the upside in order to avoid another wide range downside session. Take into account that 908.50 are the 61.8 Fibonacci between the weekly highs and lows, so this area has to get exceeded and hold on a pullback for this rebound to gain additional momentum. For today’s trading session, early strength may fail to hold all the time that the SP does not break above the 908.50 level, if markets sell off from an early bounce, look for the downside pressure top increase once the index trades below 897.50.”

So the weekly lows held and after the markets posted an early higher low and intraday double bottom we had an uptrend session, once the 908.50 area was exceeded it was all for the shorts, and this time, it was a broad based rally, the Dow joined the move.

The SP failed short of the 918.00 area, the Dow couldn’t make it to the 8500 level and the Nasdaq stalled at the 1473.00-1475.00 resistance levels. All these are very important price levels, for the rally to continue, into the end of the month, all three markets have to close above them, otherwise, yesterday’s rally may give way to a consolidation or narrow range session during today’s trading session and maybe for the rest of the month.

If we look at the daily charts we can see the huge sell off that happened last Monday that came after three days of a weak rally and that pushed markets to a new low, below the June 17 low, then we have a narrow range session with a positive close and then two positive sessions with yesterday’s solid move. So three days up, a one day sell off and another three days of rally. This may look positive, but for the move to get extended and not fall under a first degree countertrend in a down trending market, a few things have to happen, first, if today markets consolidate yesterday’s big move, it will be normal, but the close can not be weak, even taking into account that it is a Friday and traders may avoid a long position for the weekend; second, nothing good happens if the SP does not break and close above the 918.50 area; and third, the June 16 924.75 on the SP from where the recent pullback gained momentum has to get exceeded in a solid way.

Yesterday’s rally looks a bit different, volumes were better and the Dow joined the move, so I will be very surprised if today’s session reverses yesterday’s gains, but we could see back and forth action between the 908.50 area and the 918.50 break or made high.

With some shorts trapped at lower prices, I may favor buying the deeps, however I don’t expect another trend session, so two side action may be seen, selling may be done near the resistance areas, but if the 922.00 level gets exceeded be careful as a short covering rally may push the SP up to 931.00 if we have another strong session. (Try to keep a long position if the NQ is over performing the SP).

TODAY’S SESSION

There is strong resistance at 919.00-921.50 on the SP, 1478.00-1480.00 on the Nasdaq and 507.60-509.60 on the Russell. If the rally stalls there, look for a good reversal, but if those can not hold the buying activity, markets may test 924.00-925.50 on the SP, 1486.00-1488.50 and 511.50-513.40 on the Russell. Another short trade may be try at those areas, but expect a strong breakout if they do not hold, that may push the indexes up to 930.50-931.25 on the SP, 1496.00-1497.00 on the Nasdaq and 517.30-517.60 on the Russell before the session is over.

There is support at 913.50-911.75 on the SP, 1468.00-1466.00 on the Nasdaq and 503.80-501.90 on the Russell. Nothing bad happens all the time that the indexes hold above them, but if they fail, look for strong support at 909.00-908.00 on the SP, 1462.00-1460.00 on the Nasdaq and 499.90-497.70 on the Russell. If those fail, markets probably will gain downside momentum and go for the next support levels at 903.50-901.50 on the SP, 1451.50-1448.50 on the Nasdaq and 494.20-492.40 on the Russell. GOOD LUCK>

TODAY’S SUPPORT, PIVOT AND RESISTANCE LEVELS

S&P

NASDAQ

RUSSELL

Resistance 4

935.00-936.50

1504.00-1506.00

521.20-522.40

Resistance 3

930.50-931.25

1496.00-1497.00

517.30-517.60

Resistance 2

924.00-925.50

1486.00-1488.50

511.50-513.40

Resistance 1

919.00-921.50

1478.00-1480.00

507.60-509.60

PIVOT

908.50

1460.75

500.20

Support 1

913.50-911.75

1468.00-1466.00

503.80-501.90

Support 2

909.00-908.00

1462.00-1460.00

499.90-497.70

Support 3

903.50-901.50

1451.50-1448.50

494.20-492.40

Support 4

899.00-897.00

1444.00-1442.00

486.90-484.70