More important than the opinions expressed here is the question; what is the market going to do next week, next month and over the course of the last two quarters of the year. Okay so we admit that is your total interest in these scribbling’s. Actually if you really wanted economic comedy you could either turn on the comedy channel on cable or watch the current administration.
In the short-term: We expect to see the market back and fill with initial resistance at 1287. We survived the roll, moving the front month contract from June to September and we also survived options expiration. Now what is left is the end of the quarter window dressing and portfolio adjustments. It is interesting to note that the NASDAQ 100 removed the March 2011 lows this past week and that it posted a loss in the Friday session in the face of a gain in the S&P 500 futures contract. The Russell 2000 also posted a slight loss for the session.
Short term, this is not a positive development. The S&P 500 has defensive issues in that index while the small caps, obviously do not and the NASDAQ 100 does but only issues that perform well in an expanding economy, not one sputtering along in need of a tune-up. Although the PIIGS are alive and doing well, we would expect to see some resolution by the EU regarding that liability in that short-term situation and that resolution will give the market a chance to bounce and relieve some of the oversold condition. After that, we expect to see the market stumble around in a range bound fashion terrified by the seasonal weakness usually seen at the end of August and the beginning of September. The market believes that crashes occur in October and acts defensively. Actually, October is not the worst month of the year, September is.
Longer term we expect to see a bottom on this market because people and institutions want yield and they simply can’t get it in bonds or in the money market funds. Thus they look to securities that have a long history of paying a dividend. So you see there is a floor under this market. That said, we would be inclined to change our minds should a banking crisis occur in the European Union.
Tuesday: May existing homes sales are released at 10:00.
Wednesday: FOMC concludes its two-day meeting with its interest rate decision and a statement at 2:15.
Thursday: May new homes sales are released at 10:00.
Friday: May durable goods are released at 8:30 and 1st quarter GDP is released at 8:30.
The US Dollar index rallied, in the Thursday session, to the highs seen on May 23 and then it retreated into the Friday session closing down 7.79 on the day. All the indicators that we follow herein are issuing a sell signal. The 5-day moving average is at 75.409. The top of the Bollinger band is at 76.631 and the lower edge is seen at 73.277. We are above the Ichimoku Clouds for the daily time-frame but are below the clouds for both the weekly and the monthly time-frames. A lot depends on the next rally attempt. Should this index close above the May 23, 2011 high of 76.540, the door will be opened to higher levels such as 77.675 and 78.98. Above 76.960 there is very little in the way of supply to hold this market down and we could see a melt to the upside.
The S&P 500 September futures contract attempted a feeble rally in the Friday session only gaining 2.50 points on the day. With all the uncertainty about Greece and the weekend non-trading, clearly traders and investors alike were not willing to commit capital to this market. It is likely, should nothing awful happen this weekend that we will see a health bounce in this index in the Monday session. There are some divergences beginning to appear. The stochastic indicator made a higher low on the most recent decline. This is also true for the RSI and our own indicator all of which are now pointing higher. The 5-day moving average is at 1268.05. The top of the Bollinger band is at 1347.79 and the lower edge is seen at 1244.35. We are below the Ichimoku Clouds for the daily time-frame but are above the clouds for both the weekly and the monthly time-frames. We are oversold but not as oversold as we were several days ago. We do have a 9-count on the chart and believe that there will be a decent rally in the coming week. The one danger we see on the chart occurs below 1253.50. Should we trade below that level, it is likely that we will melt to the downside. We continue to have support in this market from those seeking some dividend return. This will likely keep the market out of trouble for the short term.
The NASDAQ 100 September futures contract declined in the Friday session. We removed the March 2011 lows in the Thursday session. This is not good for this index or the small cap index. The stochastic indicator is issuing a sell-signal; our own indicator is just about ready to do the same. The RSI is oversold and pointing slightly lower. The Thomas DeMark Expert indicator is also pointing lower. Under 2180.25 we have little to support this market. The 5-day moving average is at 2211.50. The top of the Bollinger band is at 2382.51 and the lower edge is seen at 2172.38. We are below the Ichimoku Clouds for the daily time-frame but are above the clouds for both the weekly and the monthly time-frames. This index does not look good. We do expect to see a bounce from these deeply oversold levels but we will keep an eye on this rally.
The Russell 2000 looks as though it is trying to form a bottom. We did see the index print a lower low in the Thursday session than was seen in March but that was by a few dollars. The 5-day moving average is at 780.08. The top of the Bollinger band is at 849.22 and the lower edge is seen at 759.13. So long as this index does not close below 768, we will remain out of trouble. The stochastic indicator continues to issue a sell-signal albeit at oversold levels. Our own indicator is going sideways. The RSI is going sideways just above oversold levels. The Thomas DeMark Expert indicator is also going sideways. We are below the Ichimoku Clouds for the daily time-frame but are above the clouds for the weekly and the monthly time-frames.