Markets end lower on profit taking as government moves to unlock credit lines. J&J tops estimates.
ECONOMIC DATA
8:30 AM PPI
8:30 AM Core PPI
8:30 AM NY Empire State Index
10:00 AM Business Inventories
10:35 AM Crude Inventories
2:00 PM Fed’s Beige Book
YESTERDAY’S MARKETS
Stocks gave up an early rally as investors welcomed the U.S. government’s move to unfreeze the financial system, but worried about the economy. After running strongly during the Globex session, and reaching a high just above my 1063.00 area, the E-mini SP opened the session at 1053.50. Just as the session kicked off, selling came into the markets leaded by the weakness on the Nasdaq, and once the SP broke below the 1048.00 area the downside move got very strong momentum reaching 1018.00 from where a short covering rally pushed the index back up to 1034.00. Unable to continue higher, the SP sold off to 995.00. Another rebound failed at the critical 1010.50 level and the index visited once more the intraday lows. The double bottom held and the SP rallied back up to 1020.50 where sellers stepped back in and pushed the index back down to 1005.00. Another good short covering rally drove the SP and the Nasdaq just to our updated resistance levels at 1025.00 and 1425.00 respectively. The markets traded for an hour on a sideways pattern with extremely low volumes. After failing to hold the 1010.50 area, the SP pulled back once more to the 1000.00 level. Once that level failed to hold, the SP pushed strong lower making a new low at 883.00 from where it bounced back up to 997.00. After failing to get back above the 1000.00 mark, the sell off continued reaching 774.25 from where the SP posted a strong short covering rally up to 997.00 from where it pulled back once more but rallied into the end of the session. For the day, the SP lost 14.50 points closing the session at 1002.25, the Nasdaq gave back 92.50 points and settled at 1366.00 and the Russell ended lower by 13.50 points at 558.20. The Dow lost 76 points ending the day at 9310.
MARKET COMMENTARY AND OUTLOOK
Yesterday I wrote: “Yesterday’s record rally after last week huge sell off seems to have posted the low that we were looking for, and the indexes should continue with their near short term upside momentum at least for the next sessions. Many times I have write about the relative lack of importance in isolated moves, and with this I make reference to they key follow through continuation patterns after an important move. That means that yesterday’s huge relief rally will have to continue during the next few days in order to assume that the low is solid. This is the most probable scenario, the markets capitulated, the selling pressure got exhaust and the last shorts were trapped after yesterday’s opening gap. I can assume that for Friday’s bottom to be perfect, the indexes should move lower to test those lows by reaching them, posting a marginal new low or placing a higher low on the daily charts, but yesterday’s move seem to have legs to move higher until the last short gets squeezed and only then place the indexes in troubles. This means that buying the pullbacks should be the way to go, and if I am write, once the SP closes two consecutive sessions above 1013.00 (the first close above that area was yesterday), it should be able to reach at least the 1063.00 level, if that area do not hold an extremely overdone bear rally, then we could see the 1112.00 level before this move is over. The magnitude of last week downward move makes possible that this rally will hold into the end of next week, and this coming Friday in which there is the October option expiration should make add fuel to this huge upside move. Yesterday’s rally went with relatively light volume; this can be an arguments for bears that there was not institutional participation, but huge amounts of money are just sitting on the sidelines and ready to join the market once the indexes show some follow through. If my short term bullish bias is wrong, the worst case is to see a consolidation of yesterday’s move, but if the markets close lower today and do not recover for tomorrow’s session, this huge rally could be a great selling opportunity.”
Yesterday’s failure to continue higher with the previous day great momentum, as consequence of the lack of volume seen on the rally, and the bearish divergence that the Nasdaq showed since the beginning of the session have to be considered normal, a consolidation day on the SP and Dow of the historic rally. However the weakness on the Nasdaq which at some moment showed a 50% retracement of the previous day gains is a red light for the bulls. I have mentioned many times the importance of the “next day”, and yesterday, the index failed to show the follow through that I was expecting that place in jeopardy the recent rally. Yesterday’s wild swings are normal after the last run and they should continue.
The way the Nasdaq sold off since the beginning of the session has traders confused about the near term market direction, is not that the other indexes were able to continue with their upside move, but they did hold nicely during the session and they came back from important technical levels, the Dow respected the 9000 are and the SP was able to close above the 981.00 level. So yesterday’s lows will have to hold or the rally that we saw during Monday’s session could be only a bear rally and the indexes will move lower to test or break the recent lows. On the other side we have to consider yesterday’s pullback as normal, after a huge rally of more than 200 points on the SP, yesterday’s move consolidated in a surprisingly strong way the recent gains, no matter if all the early run gave way to a loss.
If we see the daily charts, the SP and Dow have formed a large triangle pattern, that has the potential of a 180 point move, this formation will have to get defined during the next few sessions, or to continue to be formed until the breakout occurs, if the SP will trade below 963.00 we can assume that another test of the lows will be seen, but if the breakout occurs above the 1055.00 area more upside will be seen bringing longs in and the test of the recent lows will only happen in the medium term.
Regardless of the nightly session in which the SP and Dow are trading lower, I still believe that the rally should be able to continue before markets turn lower for a test of last week lows, so I would carefully watch my support and pivot levels and the Nasdaq behavior in order to try and get long the markets, however if yesterday’s lows get broken or the Dow trades below 9000 I will avoid the long side.
TODAY’S SESSION
For today’s trading roadmap and intraday updates, please read the authors bio.
TODAY’S SUPPORT, PIVOT AND RESISTANCE LEVELS
S&P
NASDAQ
RUSSELL
Resistance 4
1053.25-1054.75
1446.00-1447.00
591.90-592.30
Resistance 3
1028.00-1029.50
1406.00-1408.00
578.50-579.40
Resistance 2
1019.00-1021.00
1394.00-1395.50
570.00-571.30
Resistance 1
1010.50-1012.00
1379.00-1381.00
563.80-565.00
PIVOT
1014.50
1406.00
565.20
Support 1
993.75-992.00
1352.00-1351.00
551.70-550.40
Support 2
984.50-983.00
1339.00-1337.50
545.30-544.00
Support 3
975.00-973.50
1326.00-1324.00
534.10-532.40
Support 4
961.00-958.50
1313.00-1311.50
524.70-523.50
S&P
NASDAQ
RUSSELL
FIBONACCI
FIBONACCI
FIBONACCI
1217.07
1734.82
698.48
1195.18
1700.43
684.02
1159.75
1644.75
660.60
1124.32
1589.07
637.18
1102.43
1554.68
622.72
1067.00
1499.00
599.30
1031.57
1443.32
575.88
1020.63
1426.13
568.65
1009.68
1408.93
561.42
974.25
1353.25
538.00
938.82
1297.57
514.58
916.93
1263.18
500.12
881.50
1207.50
476.70
846.07
1151.82
453.28
824.18
1117.43
438.82
DAILY PROJECTIONS
S&P
NASDAQ
RUSSELL
AS DAILY HIGH
1034.00
1432.00
578.80
AS DAILY LOW
941.00
1286.75
517.50
Support, Pivot and Resistance levels courtesy of Arturo Stern. He authors the E-mini Daily trading advisory which gives technical analysis on all the major stock index futures contract. For more of his analysis go to www.theminitrade.com Arturo can be reached at arthur@theminitrade.com
Futures and options trading involve risk. You must be aware of the risks and be willing to accept them in order to invest in the futures and options markets. This is neither a solicitation nor an offer to buy or sell futures or options. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed in this document. The past performance of any trading system or methodology is not necessarily indicative of futures results.
