Pre-market update (updated 9am eastern):
- European markets are trading -1.1% lower.
- Asian markets traded 0.7% higher.
- US futures are trading moderately lower ahead of the opening bell.
Economic reports due out (all times are eastern): MBA Purchase Applications, Pending Home Sales Index (10am), EIA Petroleum Status Report (10:30am), Farm Prices (3pm)
Technical Outlook (SPX):
- SPX nearly broke out of consolidation yesterday, just finishing a fraction of a point within the boxed in area outlined below.
- Today we are faced with the prospect of reversing to the downside with a large gap down.
- These large gap downs have been problematic for the bulls to maintain. They often lead to the dip buyers trying to fill the gap after the first hour of trading.
- We've pulled back off of overbought conditions quite nicely.
- Consolidation continues to be the theme on the daily. We need to see either a break to the upside of 1563, or a break to the downside of 1538 to determine the market's next move.
- Volume continues to remain steady over the past week and a half of trading.
- Dead-cat bounces, like some may determine Friday to be, have really been non-existent of late. Once they bounce, they just keep going higher, no true reversals that takes us lower than the previous lows reached.
- We have seen the volume flow in much stronger on the sell-offs then on the days when the market rallies.
- VIX dropped back into the 12's after yesterday's rally.
- I don't recommend using market bounces as an opportunity to reload your short positions at this time.
- Ideally, we are still in need of a more sustained pullback to 1500-1510 level simply for the reason, that it would once again bring stocks back to a place with more ideal setups and opportunities for trading.
- Also the amount of margin being used to buy stocks are at levels that historically have led to notable reversals in the market.
- Both channels (July October 2012) and the price channel we are currently in are very similar in nature.
- We haven't seen a market pullback in excess of 4% since October/November time-frame.
My Opinions & Trades:
Chart for SPX: