Blue chips will lead the market reversal

The major
indexes suffered large declines last week, largely due to hawkish commentary by
a number of Fed clones. Equities started the week in a negative fashion, after
comments from Clone Leader Bernanke, that the Fed must remain vigilant in
fighting inflation, put pressure on stocks. The weakness continued Tuesday and
Wednesday, as more Fed officials made further hawkish comments. On Thursday,
the key indexes were in a freefall in the early going, but staged a dramatic
reversal to finish roughly flat. This brought out the bottom pickers on Friday,
but those hopes seemed to be dashed when stocks continued lower. Very few
sectors were spared from the carnage, as the declines were extremely broad-based
in nature.

In hindsight (it’s always easier to see things that way!), it’s pretty clear
that the Fed wanted to gain the respect of the markets. One clone after another
came out and spoke with a clear hawkish bias. Overall, this is the exact same
Fed from Greenspan’s last few years as Chairman. I highly doubt that their
motive was to send stocks lower and significantly crimp the economy. My guess
would be that the Fed was jawboning the market by talking tough in order to try
to avoid their history of over-tightening. Commodity prices have pulled back
significantly over the last month and wage inflation remains largely
non-existent. Furthermore, with the economy clearly in deceleration mode, it’s
very likely that inflation will decline later this year.

As far as the equities markets go, at some point in the next few weeks I
wouldn’t be surprised to see a selling crescendo-type low put in. While this
could be a very solid buying opportunity to play a “summer rally”, it’s
important to use patience and not lose a few fingers by trying to be a
know-it-all hero. The tail end of a decline is often the most severe part, as
the losses can make your head spin in those last few days. Since high quality
names usually snap back first, it’s probably a good idea to focus on some of the
bluer-chip names for hints of some daylight.

Pivot Points for 6-12-06

Symbol Pivot R1 R2 R3 S1 S2 S3
INDU 10913.24 10954.88 11017.85 11059.49 10850.27 10808.63 10745.66
SPX 1254.97 1259.91 1267.52 1272.46 1247.36 1242.42 1234.81
ES M6 1265.42 1270.33 1279.17 1284.08 1256.58 1251.67 1242.83
SP M6 1265.47 1270.23 1278.97 1283.73 1256.73 1251.97 1243.23
YM M6 10991.67 11033.33 11100.67 11142.33 10924.33 10882.67 10815.33
BKX 109.76 110.17 110.75 111.16 109.18 108.77 108.19
SOX 447.82 453.25 462.34 467.77 438.73 433.30 424.21

Please feel free to email me with any questions
you might have, and have a great trading week!

Chris Curran

Chris Curran started his trading career at the
age of 22 with a national brokerage firm. He combines fundamental and technical
analysis to get the big picture on the market. Chris has been trading for 15
years, starting full time in 1997, and has never had a losing year as a
full-time trader.