Securities Research Services

The head and shoulders topping pattern for the SPY and SPX remains in tact.  Selling at the top of the right shoulder took place right on schedule and yesterday we had a high volume distribution day.  Considering the fact that this is a holiday week higher volume lends more significance as volume is typically low in front of the July 4th holiday.

It appears more likely now that $87.50 will be tested.  If $87.50 breaks then the target is $82.50.  We don’t want to get ahead of ourselves though.  The most likely scenario here is that prices pull back to $87.50 and then move back up to the top of the right shoulder again in the $92.50 area.

Don’t forget that summer trading tends to be of the ranging variety not the trending variety.  Prices could easily range within the area of the right shoulder for a month or more before $87.50 is ultimately breached.

Prices are at an important juncture here.  Last week the market made a lower high and a lower low.  Then, later in the week prices whipsawed and moved back up to test areas that we think exemplify major pivot points on the indices.

If buyers can push prices past these pivot points then bulls will regain control of the tape.  However, keep in mind that there are some serious headwinds above, not the least of which is the fact that dumb money is overtly bullish and oversold tensions have had a chance to work themselves off.  In fact, the fast stochastics on the QQQQ are now back in overbought territory and the SPY is quickly approaching this level.

Nevertheless, we are in that end of the month window where price action tends to be bullish as fund managers seek to employ their cash before they report to their fund holders.

SPX Head and Shoulders

The SPX appears to be forming a complex head and shoulders formation.  It has resistance at $927, last week’s lower high, but it also has right shoulder resistance slightly above at $932, so a break above $927 might have some bullish implications, but we think that a close above $932 is needed before bulls can finally say they have regained control.

Keep alert for stop sweeps up to these levels.  A breakout is going to be tough for the bulls here.  We think that probabilities favor a failure at these levels, not a breakout.  This is due in large part to the major divergences that are showing up here and lack of participation as many stocks are failing to confirm the strength we saw in the indices on Thursday and Friday.

QQQQ Rising Wedge Breakdown

Meanwhile, the QQQQ showed more strength than the SPX late last week, but if we pull back to look at the daily view we can see that bulls have not yet regained control.  Prices pushed over the lower high of $36.36 but did so on lower volume.  Unless we see follow through higher on increasing volume we need to consider the idea that this may just be a “kiss the trend goodbye” move.

So stay agile and alert here.  If prices can follow through higher on volume then you need to rethink the short positions entered last week.  If prices stall here, then prices may be set to decline back to $33 on the QQQQ and $878 on the SPX.

Oversold, But So What?

Momentum favors the downside. The only glimmer of hope that I can see is that some measures are oversold. But so what! Tuesday’s wave structure appears corrective and a Double Zigzag.

Transports Rolling Over

The last time the Transports fell so much and touched it’s long term support in 02′-03′ it formed this type of bottoming pattern and then went on a major bull market run.

Support Becomes Resistance

Prior support became resistance on the QQQQs. The high tested prior support but could not breach it. We also got day two below prior support adding confidence that yesterday (Monday) was not just a one day fakeout.

Expect Narrow Range to Continue Into Fed Meeting

Tomorrow’s FED meeting might give us a reason to trade, but it could be quiet leading into the announcement at 2:15 EST.

Bulls are Fading

Look for some quieter trading in the stock market in the coming weeks, amid summertime doldrums.

Financials Threatening to Break

$RIFIN is the index that FAZ and FAS track. Today it came very close to breaking a key support at 600.
Each day this chart looks weaker and weaker, today helped to strengthen the case as RIFIN closed below its 50EMA. If $RIFIN breaks its support at 600, the next strong area of is around 530-540.

Natural Gas Breakout Hopes Fading?

The recent breakout of UNG (United Natural Gas) fizzled a little bit,but is still above the prior resistance line that has now become support ! However,if  UNG goes below this support level ($14.20) then the bullish case for natural gas will “naturally” fade away !

Run Down of Today’s Upcoming Events

Today should be an interesting day for those that believe “the news moves the markets”.

x3 ETFs Headed for Reverse Splits

Direxion, a pioneer in providing alternative investment strategies to sophisticated investors, announced today that it will execute a 1-for-2 reverse split of the shares of Direxion Daily Mid Cap Bear 3x Shares after the closing of the markets on Wednesday, June 24, 2009. MWN shares will begin trading on NYSE Arca, Inc. (NYSE Arca) on a split-adjusted basis on Thursday, June 25, 2009.

Revisiting March Lows?

According to Bloomberg and Jim Reid, we’re likely to see much lower valuations (and stock prices) at some point in the next few years…

What Will Win, the Gold Cross or the Trend Channel?

Let’s get ready to RUMBLLLLLLE. We have a challenger to the Golden (Boy) Cross. In the red corner weighing a ton is the primary channel of the /ES. As seen below, this channel is well established. Can it withstand a beating from the Golden Boy?

Dead Cats Messing with Elliot

However, the waves have yet to cooperate. Every bounce since the 956 high has been of the dead cat variety and today was no exception.

FOMC Expectations

The FOMC announcement is expected today at 2:15 EST after a two day meeting.  It’s widely expected that the Fed will leave the target rate at 0-0.25.  Investors will be focused on the Fed’s statement and any changes.  Investors should be primarily focused on the Fed’s exit strategy.  Unfortunately, after nearly 24 months of ineffective rate cuts it’s hard to imagine why so many care about this meeting.

Wait!  Oversold Does Matter?

I remain short term bullish, actually VERY bullish.

There will be a time to swing short the market w/ both fists.
That time imo is NOT now, still not yet.