Bounce?
Most traders are looking for a bounce today. But the key to moving forward is whether this bounce will turn into a rally, or if it will just be a trading bounce.
This morning, S&Ps were trading up 300 at 1346.50. Volume in the S&Ps has been heavy, nearly 4000 trading overnight. For today, there is key resistance at 1350-1354. If we can get above that, it targets a move to the 1363-1364 area. We have a resistance zone between 1360.50 and 1364. If this zone can hold, we think it could launch a short-covering rally that could take us up as high as 1385.
The key areas above 1364 will be 1370.50 to 1372, above that 1379 to 1380.50. The Morning Pivotal Area is at 1347.50 to 1352.50.
On the downside, the first level of support will be between 1344 and 1341, below that, obviously yesterday’s low at 1339.50, and if the market cannot hold this area, look for a move to the 1330 level. We have support between 1331 and 1329.50. If this happens, it means that the S&P cash will have broken through the 1325 level and be at a new low for the year.
We expect to see sell stops in the cash market below an area of 1325-1323. If the market were to go below 1329.50, the next target would be a support zone between 1320 and 1317.50. If all hell broke lose, they could even go lower.
One interesting note was that we had very heavy volume in the S&P futures — about 125,000 contracts traded. Open interest actually increased by nearly 4000. On top of that, sentiment readings are beginning to near some historic levels, in terms of negative.
NASDAQ futures were trading up 2500 at 3071. Year-to-date, the NASDAQ Composite is now down 24.5%. Breadth is continuing to be horrendous. The advance/decline line just posted a new 12.5-year low. Cash made a low yesterday of 3000, holding more than 100 points above its intraday May low of 2897.
If you have been position-short and you did not cover yesterday, you have a lot of nerve. With the Middle East conflict and all that occurred yesterday, it was a “dream come true” for shorts to get out of the market at good prices. Obviously, we’ve been overextended on the sell side for closing in on a week. As far as our readings go, this is the largest extension ever in the 200-day moving average in the Composite.
Basically, it tells us that you have to be a smart buyer in here. Don’t overextend yourself on leverage; take quarter and half positions and then — most importantly — wait. As for the day session, we don’t know if we’re going lower or higher, but the odds are overwhelming that two weeks from now we will be higher than we are right now.
For today, we see support at 3040 to 3025, which was yesterday’s low. Under this, expect a move to 2980. If the market fails to hold support there, look for a trade between 2940 and 2925. If that were to fail, 2850 should be traded.
Resistance is at 3085 to 3100, and above this 3125 to 3133. If the market gets above 3133, we’re looking for a run to 3210. Along the way, 3160 to 3172 will be resistance. Above 3210 we could have a strong short-cover rally continue that could take us as high as 3300.
As for the Dow, it traded down to its lowest level since March and its lowest close since March as well. We are only 300 points away from the year lows of 9730. We had some banking crises on top of bad earnings. On a trade below 9900, it’s probably time to look to be a buyer.