Merger/ Buyout News is No Match For a Slowing US Economy

OVERNIGHT CHANGES THROUGH 6:05 AM (CT): S&P 500 -760, DOW -70

While the sky appears to be the limit in the US Treasury market, that type of action typically serves to undermine equity prices. At least in the early action today, the bear camp seems to have the advantage of headline flow as concerns toward the Japanese and US economies seems to be thick in the news flow overnight. With a number of analysts expecting a rather weak US existing home sales reading later this morning, it is possible that macro economic sentiment could be undermined even further, but the question is whether or not the promise of extra easing from the US Fed later this week, will be able to cushion the slide in equity prices. While the existing home sales report might avoid being as soft as some expectations, the best within the range of estimates doesn't seem to paint a very up beat picture for the US economy. With noted range down action in a number of US equity market measures this morning, it would appear as if the market is set to start out with a negative bias. 

S&P 500: The September S&P has also forged a downside extension and in the process the market has reached the lowest level since July 20th. Apparently the markets are openly concerned about the prospect of further US slowing as investors appear to be migrating toward the sidelines rather than face the uncertain prospect of the economy. Until we see evidence of a huge range down exhaustion type move in prices, we are not inclined to predict a bottom in stocks. In fact, if the Fed remain mute until the Jackson Hole meeting later this week that could leave the bear camp in control for the coming trading sessions. Near term downside targeting is seen initially at 1050.10, but we also leave open the potential for a slide down to the 1040.00 level.

DOW: With a range down extension in the early going today, the bear camp would seem to have the technical edge in the early Tuesday trade action. It is possible that the market is already working to factor in a weak existing home sales report, with some analysts predicting a double digit decline in that report. With disappointing Japanese economic readings also seen overnight, the trade is apparently seeing a number of comparisons between the US and Japanese economies. The wild card for the bull camp is the hope that dialogue from the Fed symposium will provide some hope for eventual recovery, but that dialogue might not be forth coming until later in the week! Near term downside targeting in the September Mini Dow is seen at 10,000 but a return to the mid July low of 9,946 is certainly possible in the event that Fed dialogue isn't there to pick up the pieces from the US existing home sales report. 

NASDAQ: Like the Mini Dow, the Nasdaq appears to be extending its downside bias in the early Tuesday trade. Apparently ideas that tech sector shares will be cushioned against slowing is lost on the trade today, as prices this morning have reached the lowest level since July 20th. Near term downside targeting in the September Nasdaq is now seen at 1782.00 which is also the July 20th low. In the event that US existing home sales surpass rather dismal expectations, it wouldn't be surprising to see the September Nasdaq re-test the 1775.00 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) 08/24/2010: 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 market could take on a defensive posture with the daily closing price reversal down. The market's close below the pivot swing number is a mildly negative setup. The next downside objective is now at 1053.03. The next area of resistance is around 1073.55 and 1084.82, while 1st support hits today at 1057.65 and below there at 1053.03. 

S&P E-MINI (SEP) 08/24/2010: Daily stochastics declining into oversold territory suggest the selling may be drying up soon. The market's short-term trend is negative as the close remains below the 9-day moving average. The downside closing price reversal on the daily chart is somewhat negative. The market tilt is slightly negative with the close under the pivot. The next downside target is now at 1052.88. The next area of resistance is around 1073.50 and 1084.87, while 1st support hits today at 1057.50 and below there at 1052.88.

NASDAQ (SEP) 08/24/2010: 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 downside closing price reversal on the daily chart is somewhat negative. The market's close below the 1st swing support number suggests a moderately negative setup for today. The next downside target is 1779.32. The next area of resistance is around 1828.12 and 1853.81, while 1st support hits today at 1790.88 and below there at 1779.32.

DOW (SEP) 08/24/2010: The market now above the 40-day moving average suggests the longer-term trend has turned up. 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. With the close higher than the pivot swing number, the market is in a slightly bullish posture. The next downside objective is 10171. The next area of resistance is around 10273 and 10291, while 1st support hits today at 10213 and below there at 10171.

MINI-RUSSELL 2000 (SEP) 08/24/2010: 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 downside closing price reversal on the daily chart is somewhat negative. The market setup is somewhat negative with the close under the 1st swing support. The next downside target is 588.3. The next area of resistance is around 610.4 and 622.8, while 1st support hits today at 593.2 and below there at 588.3. 

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