We suggested early this week that stock prices at this week’s quasi double bottom low (Monday & Tuesday lows) might be some form of fundamental equilibrium. The bulls are suggesting that the November lows were overdone as those prices expected the worst from the economic and the credit market condition. However, with the markets to yesterday’s early highs, seemingly poised to return to the vicinity of the last months highs, that clearly seemed out of place. In fact, this week’s lows in the S&P resulted in only a temporary venture down toward the “middle” of the last month’s trading range! In other words, the stock market at times this week appeared to be factoring in a much better than expected payroll reading. While prices fell back sharply on Monday, as if they were intent on factoring in a bad number, we think that prices are still too expensive. Certainly the prospect of a program to offer 4% mortgage rates for new construction is helpful, that the prospect of a US auto maker bailout is a another positive and certainly rumors of a $1 Trillion dollar stimulus package from Obama is something to cheer the bulls on with, but we would be surprised to see the stock market throw off the downtrend pattern on the charts this early in the slowing cycle.
DOW: Down trend channel resistance in the December Mini Dow is seen at 8,654 with closer-in resistance seen up at the quasi double high zone of roughly 8,634. Unless the payroll report provides a bullish surprise and or there is a timely break through in Congress in favor of a US auto sector bailout, we suspect that the bear camp is going to have control of prices in the morning trade. However, after an initial slide we suspect that the market will attempt to recover as that has been the pattern this week.
NASDAQ: Down trend channel resistance today is rather tight at 1159.65, with other resistance seen at a quasi double top of 1170. With another tech sector stock yesterday predicting a 4th quarter miss on its revenues, it would not seem like the Nasdaq will get any fresh support from the tech sector. A quasi double low around 1133 early in the week would seem to be a fair downside targeting initially, with the market quickly falling below that level in the event that the US payroll readings are worse than expected this morning.
S&P 500: We see the middle of the trading range in the December S&P as 818.25 and since the S&P spent almost no time below the middle of the last months trading range in the face of constant evidence of even more severe slowing ahead we think that the S&P is expensive. With a quasi double bottom low early in the week around the 813 level, we suspect that level could be an easy target for the S&P this morning if the payrolls are even slightly worse than expectations. However, since the majority of the headline projections this week are expecting a worse than expected reading, seeing an as expected reading could mean that the initial weakness today will be thrown off quickly. In short there might be no small bets today in the S&P.