Benign But Be Careful
S&P futures rallied off a benign PPI report, but be careful as the trading range could still be confined today. In fact, these last few PPI reports have been confined to a roughly 1% trading range for the market. We think the odds for this trend to continue are quite strong, as we’d be surprised if many players will want to take aggressive new positions before next week’s CPI and Greenspan testimony.
This morning, S&Ps rallied off a benign PPI report to 1520.50, and have since given back some ground and are trading at 1516, up 650. Volume surged on the PPI number, as over 1500 contracts have traded on Globex since the release of the report.
For the upside, S&PS must stay above 1510.50. Support will be found between 1510.50 and 1512.50. Above this, 1519.50 to 1521.50 area becomes very important. 1521 is one of our first targets on the upside. Above 1521, 1525 all the way to 1530 should provide a resistance band. For this morning, the pivot will be between 1514 to 1512.
On the downside, below the support between 1512.50 and 1510.50, 1505 becomes the key. Below 1505, the selling could accelerate, targeting a fast move to the 1490-1488 support zone. Along the way, 1502.50 to 1500.50 is support, then 1498 to 1497.50, and then the support outlined earlier.
Also on S&Ps, yesterday was the second day in a row the sub-indexes had more losers than winners. In fact, yesterday of the 88 sub-indexes, 57 were down. This is normally something to keep an eye on, as we may be entering slightly over-bought territory.
NASDAQ is currently trading up 58.50 at 4067. This puts us above the 4058 recovery high from our lows of the year. We’ve been targeting 4140 for the past few sessions, and have no reason to change that.
For today, we see a key area of support between 4048 and 4025. As long as we hold this zone, the upside should be played. Underneath this zone, we would look for a quick sell-off down to the 3975-area.
If the market cannot hold support between 3975 and 3960, look for 3900. On the upside, we target 4092, which is an 88% retracement of the down move from 4245 (which started April 3) to 2975 (which occured on May 24). Above 4092, we think it might be an aggressive move to 4140.
The Dow continues to be the laggard. Lately it’s been due to the demise of the drug stocks, as this index is being pulled in multiple directions. A bullish sign would be a nice rally to settle above the 10,863 in the cash. We’re still targetting 11,140. All bets will be off if we settle below 10,620.