Sell Minor Rallies Until Big Range Down Reversal Signal is Seen

OVERNIGHT CHANGES THROUGH 6:05 AM (CT): S&P 500 -610, DOW -52

With European markets showing some periodic weakness and early US action flirting with yesterday's lows, it is clear that the path of least resistance is pointing downward. The market is understandably disappointed in the fact that slowing continues to dog the US economy, especially after the largest US stimulus package ever and several moves to extend unemployment insurance benefits in the US. While the markets might eventually cheer the push toward a small business stimulus package, the move would seem to be a little too late for most investors. While the equity market doesn't seem to be overly anxious and tending toward panic today, the need to bargain hunt doesn't seem to be prevalent yet. With the Euro zone suggesting they will leave ultra easing conditions in place until the first quarter of 2011, equity investors would seem to be presented with an entrenched expectation of ongoing slowing. With the US economic report slate empty today, it could be difficult to significantly alter the bearish mentality from the prior trading session.

S&P 500: With a fresh new low for the move following a massive range down washout type move, it would not appear as if downside momentum has run its course technically. In fact, the absence of exhaustive selling signals and generally bearish ongoing headline coverage on the economy would seem to leave the bear camp with the edge. The promise of a small business stimulus package and further US Fed easing doesn't seem to be a game changer in the early going today. Near term downside targeting in the September S&P is 1060 and perhaps even 1050.00.

DOW: The September Mini Dow started the Friday session out right on the prior session's low and that would seem to suggest that the bear case remains in vogue through the overnight action. With European stocks off to a weak start and the ECB feeling the need to leave easing in place through the end of the year, the fear of slowing has remained in the headlines. With an empty US scheduled report slate today and HP earnings and guidance failing to alter the bearish tilt from the prior trading session, it might be difficult for the somewhat stale take over mentality to check up equity prices. Critical support in September Mini Dow is pegged at 10,181 but that level doesn't look to have that much fortitude. 

NASDAQ: While the September Nasdaq has managed to hold relatively well in comparison to other sectors of the market, the hope for tech sector support was seemingly missed by somewhat non descript guidance from HP. News that Intel might buy McAfee is probably providing some support to the Nasdaq this morning but it is also possible that investors are thinking the Nasdaq (because of the tech sector) is capable of weathering further slowing better than other sectors of the market. Near term downside targeting and support in the September Nasdaq is pegged at 1810.00 but a retest of the 1800.00 level would seem to be an easy undertaking.

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) 08/20/2010: The close below the 60-day moving average is an indication the longer-term trend has turned down. Momentum studies are declining, but have fallen to oversold levels. A negative signal for trend short-term was given on a close under the 9-bar moving average. The defensive setup, with the close under the 2nd swing support, could cause some early weakness. The next downside objective is 1051.03. The next area of resistance is around 1084.05 and 1102.02, while 1st support hits today at 1058.55 and below there at 1051.03. 

S&P E-MINI (SEP) 08/20/2010: The major trend has turned down with the cross over back below the 60-day moving average. 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 market is in a bearish position with the close below the 2nd swing support number. The next downside objective is 1050.00. The next area of resistance is around 1084.50 and 1103.00, while 1st support hits today at 1058.00 and below there at 1050.00.

NASDAQ (SEP) 08/20/2010: The close below the 40-day moving average is an indication the longer-term trend has turned down. Daily stochastics are trending lower but have declined into oversold territory. The market's close below the 9-day moving average is an indication the short-term trend remains negative. The close below the 1st swing support could weigh on the market. The next downside objective is now at 1785.19. The next area of resistance is around 1839.87 and 1864.68, while 1st support hits today at 1800.13 and below there at 1785.19. 

DOW (SEP) 08/20/2010: Momentum studies trending lower at mid-range should accelerate a move lower if support levels are taken out. The market's close below the 9-day moving average is an indication the short-term trend remains negative. It is a slightly negative indicator that the close was under the swing pivot. The next downside target is 10271. The next area of resistance is around 10397 and 10451, while 1st support hits today at 10307 and below there at 10271. 

MINI-RUSSELL 2000 (SEP) 08/20/2010: Daily stochastics are trending lower but have declined into oversold territory. The close below the 9-day moving average is a negative short-term indicator for trend. The swing indicator gave a moderately negative reading with the close below the 1st support number. The next downside objective is 593.2. The next area of resistance is around 620.0 and 634.9, while 1st support hits today at 599.2 and below there at 593.2.  

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