Morning Commentary for Monday, August 30, 2010

by Steven Chanin on August 30, 2010

Good Morning SOM traders…Last week the market reacted to news events yet again with gaps up and down and multiple SD moves. Friday saw a substantial relief rally off of moderately bad GDP news and parsing of Bernanke’s speech. For the first time since 1997 analysts, turning pessimistic, have rated less than 29% of stocks as a “buy”. This can be interpreted as quite bearish or a contrarian signal of a bottom. Each whipsaw of the market is interpreted by people as a validation of their view and so each new data point (announcement) seems to trigger yet another large reaction. It feels like we are at a turning point waiting for something significant to break and move the market substantially in one direction or the other. Until then, we can expect to continue “being whipped” back and forth. Looking forward, here are this week’s economic announcements that can move the markets (all times est.): Wednesday 10:00am ISI Manufacturing, Thursday pre-market Weekly Jobless Claims followed at 10:00am by Pending Home Sales and the “biggie” on Friday yet another pre-market Monthly Employment (Jobs) Report. Also, next Monday the markets are closed for Labor Day so Thursday and Friday will factor that into pricing. Overnight the Asian markets were about 1.5% higher and at the time of this writing Europe is basically flat. Overnight the US index futures surged higher but sold off early this am before the today’s 8:30am Personal Income Report and are now lower so we should expect a lower opening today.

Technicals…Last week the S&P ended the week by bouncing smartly off of its $1,040 support in the face of further bad news. The 20, 50, 200EMAs and the prior swing high/low are all at the$1,090-$1,100 area which is now major resistance. The prior swing lows of $1,065 (also the bottom trend line) followed by $1,040 and $1,010 are levels of support. Here is what I see for technical support/resistance (all MAs are 6 month/daily, exponential):
DJI: support $10,000 (prior swing low), resistance $10,260 (200EMA)
SPX: support $1,040 (prior swing low), resistance $1,079 (20EMA)
NDX: support $1,760 (prior swing low), resistance $1,822 (200EMA)
RUT: support $590 (prior swing low), resistance $620 (20EMA)

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