Working The Downside
I wouldn’t be surprised to see a continuation of the sell-off in the S&Ps and NASDAQ today, but with PPI, CPI and “triple-witching” this week, we could see a squaring of positions and a possible rally.
This morning, S&P futures were down 200 at 1517. On the downside, we have 1514.50, a key area at 1512.50, a major at 1510.50, 1507.50, then 1504.50 and 1500. On the upside, we have 1520, a key at 1523, another key at 1526.50, and a major at 1528.50.
Last week, the NASDAQ Composite ended down 6%, putting it on the downside again for the year — and ending a streak of consecutive weekly advances since late March. For today, the futures are trading down 1500 at 3855. The market is getting a little oversold down here.
It would not surprise us to see a down morning, followed by an afternoon bounce. However, we still feel the most likely scenario is net-weaker in the market until Tuesday afternoon or Wednesday afternoon. We do caution selling bottoms to establish fresh shorts.
For today, we see support between 3858 and 3845, then 3808 to 3796. If we fall below 3796, expect the sellers to become more aggressive and ultimately lead us to 3750.
We see resistance between 3880 and 3900. Above 3900, things look a little better; 3921 is a key level, as that was Wednesday’s settlement price. Above that, we see 3932 to 3940, and 3955 to 3967.
The key thing to keep in mind is that in the final hour of trading all of this week, it will be one of two things: either extremely choppy or a very aggressive one-way street. Typically on option expiration weeks, the final-hour trades get a “stampede feel” to them, as players are needing to get other sides done on their transactions, leading to rapid price movement. So beware for sharp reversals, and typically one would like to go with the momentum in the final hour.
The Dow continues sideways to up. We are now nearly 200 points lower than Wednesday’s intraday high of 11,403, and we are beginning to work off some of the excess in our extensions from the moving averages.
For instance, on Wednesday we were about 5.5% above the 100-day moving average; we are currently about 4.2% above that average. We expect this trend to continue before the market finds support and moves higher.