thursday update

SHORT TERM: pullback from SPX 1427 resumes, DOW -107

Overnight the Asian markets were 0.6% lower. Europe opened lower and closed -1.0%. US index futures were lower overnight as well. At 8:30 weekly Jobless claims were reported higher: 374K vs 372K, Personal income was lower: +0.3% vs +0.5%, Personal spending was higher: +0.4% vs 0.0%, and PCE prices were lower: 0.0% vs +0.2%. The current y-0-y PCE rate of change is 3.3% … not a happy number for the FED. The market gapped down at the open to SPX 1403, bounced to 1404, and then headed lower. Around 11:00 the SPX took out the recent 1398 low, making a lower low at 1397. Then with a slight short term positive divergence the market tried to rally. Around 3:30 the SPX made it back to 1404 and then pulled back to close at 1399.

For the day the SPX/DOW were -0.80%, and the NDX/NAZ were -1.05%. Bonds gained 10 ticks, Crude slid 75 cents, Gold added $1, and the USD was higher. Medium term support for the SPX remains at the 1386 and 1372 pivots, with resistance at the 1440 and 1499 pivots. Tomorrow: Chicago PMI at 9:45, then Consumer sentiment and Factory orders at 10:00. Also at 10:00: FED chairman Bernanke’s speech at Jackson Hole, WY.

The market gapped down at the open today, dropped below the recent SPX 1406 low, and then dipped just below last week’s 1398 low to 1397. After that it set up a short term positive divergence and rebounded a bit into the close. The retest of last week’s SPX 1398 low was a bit of a surprise, as we were waiting for the market to break through monday’s 1416 level and move higher. Nevertheless a retest of that low is nothing out of the ordinary at this stage of the uptrend. Minor wave 4 now displays a double bottom, 1398/97, from the Minor wave 3 high at SPX 1427. Keep in mind, however, the OEW 1386 pivot range and specifically SPX 1375 are key levels to hold to keep this uptrend going.

While most are not expecting much from the FED chairman’s speech tomorrow. We think the probabilities of a QE 3 announcement are now higher than at any other time since QE 2 was announced at Jackson Hole in 2010. The PCE has been contracting since mid-2011, and is now at its lowest level since QE 2 was announced. If the FED is tracking this indicator, as we think, tomorrow could prove to be quite an interesting day.

Short term support drops to the 1386 and 1372 pivots, with resistance now at SPX 1402/03 and 1413/15. Short term momentum displays a positive divergence. The short term OEW charts are now negative with the swing point around SPX 1408. Best to your trading! 

MEDIUM TERM: uptrend

LONG TERM: bull market

CHARTS: http://stockcharts.com/public/1269446/tenpp