āGreetings From Londonā
June 27, 2011
āLack of a completely satisfactory Greek bailout, along with an uptick in unemployment claims, had the upper hand last week with a slight decline for the S&P and bond yields closing at just 2.87%. However, there was a significant package of positives including corporate profits, durable goods orders, and a -15 cent decline in gasoline futures, and Wen declaring a victory on inflation. Unemployment claims over the next 5 weeks should tell us a good deal about whether the Soft Patch has been more due to underlying problems or transitory factors. Vehicle production in July is scheduled to surge +23.8% m/m, and judging by gasoline futures, retail gasoline is on track to decline to $3.50.ā
... Ed Hyman, ISI Research
Greetings from London, where I am off to a dinner late Sunday night with various portfolio managers, and therefore these comments will be shorter than usual. Last week the S&P 500 (SPX /1268.45) rallied into the prescribed overhead resistance zone between 1292 and 1296 referenced in these missives. I have suggested this zone would be an important āattractor/repellerā level. Unfortunately, it appears it has become a ārepellerā since the SPX ātaggedā 1295.52 and subsequently declined to close last Friday at 1268.45. This leaves the SPX again testing its 200-DMA (@1263.47). My guess, given the current economic backdrop, is that the 200-DMA will be violated to the downside, leading to a āfalse breakdownā into the ascribed 1230 ā 1250 zone. Also worth noting is that a Dow Theory āsell signalā will not be registered until the DJIA (INDU/11934.58) closes below 11613.30, with a confirming close by the D-J Transports (TRAN/5214.15) below 4950.00. If, however, there is a subsequent Dow Theory āsell signal,ā combined with a downside violation of the 1230 ā 1250 support zone, I would view that as extremely negative. Recall, we were in a pretty heady ācash positionā when the SPX topped in late April. We subsequently raised more cash when the 1316 ā 1320 level was breached, and raised even more cash when 1295 was violated. While I doubt the 1230 ā 1250 zone will fail to provide support, clearly the equity markets can do anything. In the interim, I think the equity markets are in the process of bottoming.
The call for this week: It is depressing that the equity market couldnāt build on its 90% Upside Day of June 21. It is also depressing that the NASDAQ broke below its 200-DMA (COMP/2652.89), since we like leadership from the NASDAQ. Importantly, the recent decline is all about the fact that Selling Pressure has increased modestly, rather than a significant decline in Buying Power. Nevertheless, we are in defensive mode until the SPX can close above the 1292 ā 1296 level, followed by a close bettering the 1316 ā 1320 zone. To get really bullish would require a close above 1346. Until then, we remain circumspect ...
