SHORT TERM: fourth straight gap down opening, DOW -97
Overnight the Asian markets were mostly lower losing 0.9%. Europe markets opened higher, dropped, then recovered to end flat. US index futures were lower overnight and the market gapped down at the open to SPX 1353. The SPX had closed at 1364 yesterday. As the decline continued at 10:00 Wholesale inventories were reported lower: +0.3% vs +0.9%. At 10:30 the SPX hit 1343, a new low for the decline from 1415. The market then suddenly reversed and started to rally. By 11:30 the SPX hit 1360, pulled back to 1352 by 12:30 and rallied again. Around 2:00 the SPX hit 1364, then pulled back into a close at SPX 1355.
For the day the SPX/DOW were -0.70%, and the NDX/NAZ were -0.35%. Bonds lost 1 tick, Crude slipped 55 cents, Gold lost $15.00, and the USD was higher. Tomorrow, that speech from FED chairman Bernanke at 9:30. At 8:30 weekly Jobless claims, the Trade deficit and Export/Import prices. Then at 2:00 the Budget deficit. Support for the SPX remains drops to the 1313 and 1303 pivots, with resistance at the 1363 and 1372 pivots. Short term momentum continued to rise from that positive divergence, and ended the day around neutral.
This market has turned quite volatile lately, four gap down openings in a row. During a decline this is usually a sign of an impending low. The price action over the past two days has put a dent in our steady abA-B-abC decline. We were expecting the ‘b’ wave rallies to only be between 8 and 10 SPX points. Yesterday’s midday 18 point rally allowed for an alternative, and simpler, a-b-c decline. But today’s 21 point intraday rally complicates the short term count even further. Gotta love this market’s twists and turns.
Overall, our analysis suggests this downtrend is not over. We are still awaiting one key indicator to confirm a potential bottom: a downtrend confirmation in the DOW. Until this occurs, we tend to believe all the rallies are likely to be fully retraced. The market has displayed some remarkable resilience over the past two days. Which suggests the eventual low may be on the high side of the SPX 1300-1340 range. Short term support is right around SPX 1340, with resistance at the 1363 and 1372 pivots. Best to your trading!
MEDIUM TERM: downtrending
LONG TERM: bull market