Setting A Foundation
Buying action seen in the pit yesterday may indicate a favorable PPI report, and may set a foundation later on for an extended rally. This morning, S&P futures were at 1482, up 100 points.
On the way up, we see small resistance at 1483 and small at 1485. 1488 is a key area, followed by 1492.50 to 1493, which is major. For a rally, we need to get above 1492.50 and stay above it.
On the way down we see 1481, 1479.50, a key area at 1478.50, 1477.50, a major area at 1476.50, and 1475.
NASDAQ futures were trading unchanged after being up as much as 38 points. The inability for this market to take CSCO’s surprise earnings and move dramatically higher yesterday has bearish implications. In general, strong markets will use any excuse to rally, and weak markets will use even good news to sell off.
We feel CSCO’s earnings should have provided a catalyst for a big rally. The fact that the NDU actually settled right at the cash index close certainly underpins the disappointment in the index’s performance yesterday. We continue to recommend, as we did yesterday, to sell rallies.
For today, key support is between 3710 and 3690. This has been support since Tuesday afternoon. We did trade through it yesterday at the close down to 3687, but settled at 3693.50. Therefore, we still have this as valid support. If this area breaks, look for an eventual run to 3590.
Along the way, 3667 will be a swing number on the way down. Below that 3650 to 3645, 3627 to 3620, and then 3605 to 3590. If we trade through 3590, the next support is 3550-3540. Any settlement below 3590 is decidedly bearish.
On the upside, if the support band holds between 3690 and 3710, look for a quick run to 3750. Between 3750 and 3762, there is resistance. If we can get above 3765, look for 3791 to 3798. If we can get above that, 3805 to 3825 is big resistance, and an ideal spot to put more shorts on.
Dow failed to break out of the trend line resistance. We expect a little bit of a retracement. But overall the tone remains bullish. Look for retracement toward 10,900 to 10,885. On the upside, we think we’re a little bit bought-out, and would be very surprised with any settlement above 11,060.