A Measure of Short Covering Seen But No Definitive Change Expected

OVERNIGHT CHANGES THROUGH 6:05 AM (CT): S&P 500 +620, DOW +46

The stock market is showing a bit of a recovery bounce overnight and we think that is the direct result of action from the Japanese. Unlike the US Fed or the ruling class in Washington, the Japanese seem to be interested in acting before the track of slowing worsens significantly and the reality of a double dip recession becomes more apparent. News of a much softer than expected German ZEW reading overnight, combined with generally weak US data yesterday, could keep the fear of slowing in a front and center mode, but apparently the market is initially in a positive frame of mind. In fact, the equity market seems to have totally discounted views from noted investor and political live-wire George Soros that investors should exit equities and move toward gold. Perhaps the market is looking forward to earnings news from Wal-Mart and Home Depot, as that could distract the market temporarily away from the somewhat dismal flow of regularly scheduled economic data. Perhaps news of fresh buying by Warren Buffett is also providing the equity market with support overnight.

S&P 500: Perhaps the S&P was technically oversold and in need of a bounce, as prices this morning are trading notably above the Monday lows in the early action today and that action seems to have taken place in the face of discouraging international economic readings. It is also possible that the market is simply short covering ahead of the corporate earnings news but it is also possible that favorable investment news from Berkshire is providing some bulls with a reason to undertake some fresh buying. Critical support is seen at 1079.20 and there might be little in the way of resistance seen early this morning until 1087.60.

DOW: The Mini Dow in the early going appears to be showing moderately significant technical action on the upside, as the prior session's high was surpassed in the early action today. It is possible that the Mini Dow is being lifted by anticipation of favorable earnings reports from Wal-Mart and Home Depot or perhaps the market is starting to foment talk that the Fed is indeed going to make quantitative easing efforts known to the market soon. With a series of disconcerting economic developments seen from the international markets overnight it is somewhat surprising to see the US early action today forging somewhat noted gains on the charts. Perhaps the blue chip stocks are expecting earnings news this morning to take the attention away from the US data flow. Critical pivot point support is seen at 10,271 this morning, with initial resistance seen at 10,357 in the September Mini Dow contract.

NASDAQ: The minor gains posted in the prior trading session apparently came on the lowest trading volume of the year in the headline markets and to some that reduces the bullish impact of the action yesterday. It is possible that the Nasdaq is garnering some support from the Buffett news, but Berkshire isn't normally seen as a big player in small cap stocks. While the bull camp might garner some support from the earnings news this morning, the question will be whether or not the scheduled data flow later in the session today ends up discouraging investors again. Initial support in the September Nasdaq moves up to 1819.25, with little in the way of resistance seen until the 1837.75 level.

STOCKS TECHNICAL OUTLOOK:

Note: Technical commentary is based solely on statistical indicators and does not necessarily correspond to any fundamental analysis that may appear elsewhere in this report.

S&P 500 (SEP) 08/17/2010: A negative indicator was given with the downside crossover of the 9 and 18 bar moving average. Declining momentum studies in the neutral zone will tend to reinforce lower price action. The market's close below the 9-day moving average is an indication the short-term trend remains negative. The upside daily closing price reversal gives the market a bullish tilt. It is a slightly negative indicator that the close was under the swing pivot. The next downside objective is 1060.75. The next area of resistance is around 1084.50 and 1090.35, while 1st support hits today at 1069.70 and below there at 1060.75. 

S&P E-MINI (SEP) 08/17/2010: The moving average crossover down (9 below 18) indicates a possible developing short-term downtrend. Momentum studies trending lower at mid-range could accelerate a price break if support levels are broken. A negative signal for trend short-term was given on a close under the 9-bar moving average. It is a slightly negative indicator that the close was under the swing pivot. The next downside objective is now at 1060.19. The next area of resistance is around 1084.62 and 1090.68, while 1st support hits today at 1069.38 and below there at 1060.19.

NASDAQ (SEP) 08/17/2010: The downside crossover of the 9 and 18 bar moving average is a negative signal. Momentum studies are still bearish but are now at oversold levels and will tend to support reversal action if it occurs. The market's close below the 9-day moving average is an indication the short-term trend remains negative. The upside closing price reversal on the daily chart is somewhat bullish. The market tilt is slightly negative with the close under the pivot. The next downside objective is 1784.50. The next area of resistance is around 1837.00 and 1852.50, while 1st support hits today at 1803.00 and below there at 1784.50. 

DOW (SEP) 08/17/2010: Stochastics trending lower at midrange will tend to reinforce a move lower especially if support levels are taken out. The close below the 9-day moving average is a negative short-term indicator for trend. It is a slightly negative indicator that the close was under the swing pivot. The next downside objective is 10150. The next area of resistance is around 10298 and 10355, while 1st support hits today at 10196 and below there at 10150.

MINI-RUSSELL 2000 (SEP) 08/17/2010: Momentum studies are still bearish but are now at oversold levels and will tend to support reversal action if it occurs. The market's short-term trend is negative as the close remains below the 9-day moving average. The daily closing price reversal up is a positive indicator that could support higher prices. The market has a slightly positive tilt with the close over the swing pivot. The next downside objective is now at 596.8. The next area of resistance is around 622.3 and 627.9, while 1st support hits today at 606.7 and below there at 596.8. 

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