DAILY TRADING ADVISORY 28-May-2009

GM bondholders reject offer to swap bond for equity, Existing Home Sales rode for the second time in three months to an annual rate of 4.68 millions, bonds fall on inflation concerns giving way to a failure of the early rally

ECONOMIC DATA

8:30 AM Initial Claims

8:30 AM Durable Goods Orders

10:00 AM New Home Sales

10:35 AM Crude Inventories

YESTERDAY’S MARKET

Futures markets fluctuated during the Globex session. The E-mini SP started the session at 909.75 and pulled back to 906.75 and bounced back to 909.25. As the markets traded in a narrow range, the SP backed off once more, this time to 905.75. Leaded by the strength in the Nasdaq, the SP pushed up to 910.75. Once the Existing Home sales get released, the SP rallied to 912.75 and got immediately reversed pushing down to 904.75 from where it index rebounded to 907.75. After a feeble pullback to 906.00 the SP pushed up to 910.50. As markets consolidated the previous session rally, the SP continued to trade in a narrow range with an upside bias. The SP reached 912.75 but failed to break the early high giving way to a pullback to 907.25, once that level get broke, the SP pushed to new low at 904.25.after bouncing to 905.75, the index pushed lower all the way to 897.25, bounced to 900.00 and posted a new marginal low at 896.25. The SP rebounded to 902.00 and pushed down once more to a new low at 896.00; once that level gets broke the index tested 890.50 and bounced mildly into the close. For the day the SP lost 16.75 points and closed at 892.00, the Nasdaq ended lower by 8.25 points at 1402.00 and the Russell gave back 8.00 points and settled at 490.20.The Dow lost 173 points closing at 8300.

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MARKET COMMENTARY AND OUTLOOK

Yesterday I wrote: “Since May 7th, when the SP traded at its most recent highs, the next session, Friday the 8ht, the index posted a lower low. The next week, the index closed in the green Monday and the next day, the SP showed a wide range negative session followed by a consolidation of the wide range session, narrow ranges testing the weekly lows. Next Monday, the index rallied strong but the following sessions and despite a spike that exhausted temporarily the uptrend markets closed with losses. Now, after the holiday, the indexes rallied strong repeating the previous week rally. Is this rally different from last week and the markets will resume their uptrend and run to new highs for this move? If this is a change of the past two weeks consolidation and sideways pattern, more upside has to be seen during today’s trading session; follow through. If that does not happen and the rally gets reversed, then the next time that the SP test the 875.00 area it will probably break lower. Markets are facing strong resistance at various levels, the 911.00, 918.00, 925.00 and 931.00 areas on the SP, 1418.0, 1425.00, 1432.00 on the NQ and the 8500-8500 band on the Dow, certainly could post “lower highs” on the daily charts, and yesterday’s gains could result in a one day countertrend rally in a market that already exhausted its upside potential. However, if the rally continues, with strong pace, then the 940.00 area will get exceeded during this week, and with some shorts trapped near the 875.00 area or near last week lows, it is probable that yesterday’s move could hold, I would not be surprised if the markets open with an upside gap. So for today’s trading session, and after yesterday’s bullishness and with the Nasdaq leading the rally, buying the pullbacks may be the way to go, however, if the SP trades below the 898.25 area bulls may start to be concern.”

Markets consolidated posting a marginal new high, but the SP failed to trade above last week 915.75 and failed to hold the gains. Yesterday’s failure to show more upside follow through to Tuesday’s rally is a repetition of what has happened during the current month, the same pattern that we have seen after solid rallies during the last three weeks and since the high, posted on the first week of May, was repeated, no good, the SP has been sold off. We have two lower highs on the SP daily chart, the Dow is still having its problems around 8500 and the Nasdaq which has been the strongest of all the indexes, has not been able to break above the 1435.00 May’s high, also a topping picture.

The main indexes may be in their process of topping, but after the 60 day’s rally it seems to be early for a turnover and fast drop so they may be able to continue with this sideways pattern in which the recent highs may be broken or the markets will finally trade lower.

Yesterday’s close near the lows, after the huge rally continue to post exhausting sessions, when the markets move up or down, so once more, only when the markets will show some solid follow through we could call for higher prices or for the resume of the downtrend.

Today’s economic data and the expected bond auction should dictate the price action, I may favor some rebound all the time that the 886.50 area on the SP remains intact.

TODAY’S SESSION

There is resistance at 894.00-896.00 on the SP, 1406.00-1408.00 on the Nasdaq and 492.50-493.60 on the Russell, trading above may give way to a bounce to the next levels at 899.25-901.00 on the SP, 1411.00-1412.00 on the Nasdaq and 496.10-497.30 on the Russell. If the markets are weak the SP may not exceed that level by more than 1.75 points, but if the markets want to rally look for the move to reach 904.75-906.50 on the SP, 1418.00-1420.00 on the Nasdaq and 498.50-499.10 on the Russell.

There is support at 889.75-888.00 on the SP, 1398.00-1396.00 on the Nasdaq and 487.40-486.20 on the Russell, trading below them and not holding the next areas at 885.50-884.00 on the SP, 1392.00-1390.00 on the Nasdaq and 484.00-482.50 on the Russell will probably give additional momentum to the downside move, if that happens, the SP may test 891.00-879.50 while the Nasdaq and Russell test 1384.00-1382.00 and 480.10-478.60. GOOD LUCK

TODAY’S SUPPORT, PIVOT AND RESISTANCE LEVELS

S&P

NASDAQ

RUSSELL

Resistance 4

927.00-928.00

1430.00-1432.00

507.60-509.20

Resistance 3

904.75-906.50

1418.00-1420.00

498.50-499.10

Resistance 2

899.25-901.00

1411.00-1412.00

496.10-497.30

Resistance 1

894.00-896.00

1406.00-1408.00

492.50-493.60

PIVOT

898.75

1409.50

493.60

Support 1

889.75-888.00

1398.00-1396.00

487.40-486.20

Support 2

885.50-884.00

1392.00-1390.00

484.00-482.50

Support 3

881.00-879.50

1384.00-1382.00

480.10-478.60

Support 4

876.00-874.00

1375.00-1373.00

473.10-472.20

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