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The stock market was unable to bounce off the big range down effort in the prior trading session and that would seem to leave the path of least resistance pointing downward again today. We doubt that a positive reading from Existing home sales report will discourage the downward track in prices this morning, as the trade is currently accepting of the slowing view. In fact, one almost gets the sense that a negative economic outlook from the World Bank fostered a large portion of the washout on Monday. In looking ahead, it seems that the market is going to embrace the “glass is half empty” view, perhaps because the market overall probably needs the Fed to leave the ultra easy money policy in place. While the recent action in the Treasury markets could eventually prove supportive to equity prices, the stock market hasn’t seen a 5 full point bounce in Treasury bonds as supportive Development yet. Therefore, it might take even more gains in the long end of the Treasury market (lower yields) to ensure the recovery and push some money back toward the equity markets. For the time being, the edge is set to remain with the bear camp, especially if the market can’t add significantly to the early attempt to bounce today in the face of a positive US Existing home sales report this morning.
S&P 500: In our opinion, the S&P rarely bottoms after forging a big range down washout, especially when the market shows almost no bounce into the close of that session. As suggested already, the last COT positioning reports suggest that the S&P is indeed vulnerable to moderate long liquidation pressure. Our estimate for a near term low in the September S&P is seen down at 882.00 and perhaps even 875.30 if the scheduled data is worse than expected over the coming 36 hours of trade.
DOW: With another new low for the move in the September Mini Dow overnight, following a big range down washout in the prior trading session, that would seem to leave the trend pointing downward. We continue to think that the September Mini Dow is poised for a slide down to 8,170 in the coming two trading sessions. In fact, instead of the market being cheered by the coming Fed statement, one almost gets the sense that the stock market will be disappointed because the Fed still needs to continue with its ultra easing posture. In fact, if the Wednesday morning US data is soft, that could set the tone for a slide down to even lower support of 8,128 in the September Mini Dow.
NASDAQ: With the September Nasdaq unable to reject a big range down washout in the prior trading session and the trade in general seemingly prone to embrace longer term bearish economic forecasts, the path of least resistance remains down. In fact, news that Apple has sold over 1 million iPhone 3GS units was simply lost in the shuffle of negative views of the last 24 hours. Near term downside targeting in the September Nasdaq is seen at 1402.25 over the coming 48 hours of trade. In fact, with the last COT positioning readings, the Nasdaq and the S&P would seem to be more vulnerable to long liquidation than the Blue Chip sector of the market.
TODAY’S MARKET IDEAS: The trade is buying into the fears of a lingering recession and until there is some headline event to alter that bias, the bear camp looks to control.
