A rally this week will set up the short emphasis

The SPX closed the quarter at 1270.20,
+1.8% year to date and plus 4.2% off the 1219.29, 6/14/06 low. It was a job well
done by the generals, with an afternoon assist on Thursday by the Fed, who put
in a softer opening statement, probably making up for the bungling of Bernanke’s
first two statements as Fed chairman. The Dow ($INDU) was already +100 pts
before the Fed assist. Friday was a narrow range for the SPX, at just 5.8
points, yet the NYSE volume was 2.08 billion shares, which reflects the quarter
ending action. Thursday was the markup, with the SPX +2.2% on 1.88 billion
shares. The internals on Friday were better than the -0.2% close for the SPX,
with a volume ratio of 60 and breadth plus 1249. The six month report card rally
started from the very oversold short term condition at the 1219.29 low and is
now into the short term overbought zone, as you might expect. The 4 MA of the
volume ratio is 60 and 4 MA breadth is plus 711, both of which are at the
beginning of the zone. The S&P 500 5% gainers list last week was led by energy,
steel, copper, gold and transportations stocks. The XAU led the week at +7.6%,
(
XLE |
Quote |
Chart |
News |
PowerRating)
+
6.3% and
(
OIH |
Quote |
Chart |
News |
PowerRating)
+ 6.1%. Copper stock
(
FCX |
Quote |
Chart |
News |
PowerRating)
was +11.3% for the five
days. The primary focus on the SPX and commodity sectors by traders into
month end was spot on. The universe of “above the line” stocks has shrunk
to the lowest levels since October 2005 before the current quarter ending
markup. This condition is not capable of supporting any sustained move by
the SPX.

Both the SPX and Dow have retraced 50% to their 1326.70 and
11,670 bull cycle highs. That is 1273 for the SPX and 11,185 for the Dow.
The.618 levels are 1286 and 11,300. Today is an early close for the
markets at 1 PM, and I expect there will be quite a bit of random price
intra-day movement, so it is a good one for daytraders to sit out. Expect
institutional sellers to return into this retracement zone after the first few
trading days in July. The QQQQ hit 39.14 on Friday and there was
heavy resistance at 39.80-40.25. So any rally this week to these levels
sets up a short side emphasis in addition to the .50-.618 retracement levels for
the SPX and Dow.

Have a good trading day,

Kevin