A Market Usually Doesn't Go Straight Down Look to Sell a Bounce Today

OVERNIGHT CHANGES THROUGH 6:05 AM (CT): S&P 500 -100, DOW -10

The stock market enters the Wednesday trade somewhat oversold but generally seeing weakness from the Asian markets overnight. The trade was presented with a $39 billion BHP offer for Potash, but BHP tempered that offer impact with statements that they would not buy assets regardless of their price. The market might also garner some support from the prospect of a possible bidding war in the US tech sector. The market might also have garnered some lift from a better than expected German Ifo survey that was released overnight. With the added potential for a slightly positive US durable goods report later this morning, and hopes that the US Fed might shore up confidence in a "get together" later this week, it is possible that the bull camp will have some ammunition today to match up against the ongoing flow of double dip recession talk.

S&P 500: International equity markets seem to have regained some footing after general weakness was seen in Asian markets overnight. A favorable German Ifo reading and news of a possible buyout offer in the tech sector might be distracting the market from the double dip recession mentality, that seemed to be gripping the market in the prior trading session. While the markets might quickly return to double dip recession views, in the aftermath of the US Durable Goods report release later this morning, the trade is expecting to see a gain or a positive reading from the scheduled data. In short, one shouldn't be surprised in the face of a bounce early this morning, but the real test of the bull camp could be the sustainability of the upside tilt. Our pick for a short covering target on the upside is 1055.00 basis the September S&P contract. 

DOW: The September Mini Dow contract appears to have carved out a trading range above the even number 10,000 level in the overnight action. Renewed buyout news was seen from a couple different areas of the market overnight and some traders think that type of news might serve to underpin market sentiment today. Expectations for Durables and new home sales generally expect "positive" readings later this morning, but investors should be expected to remain on edge in the face of any scheduled US number release. We would expect the market to show some positive action in the face of the scheduled numbers this morning but we would also expect that optimism to wear off rather quickly and the fear of future slowing to return before the close. In conclusion, a short covering bounce is possible, but we are not sure that the market can expect to fully throw off the bearish tilt unless the numbers are much better than expected this morning. 

NASDAQ: News of a possible bidding war for a tech sector asset might provide the Nasdaq with some support today, especially since the market also saw a fresh bid from BHP for Potash. As in the upper end of the market, the Nasdaq bulls really need to see scheduled US data that counters the double dip recession track somewhat, as the slowing fears appear to have become even more entrenched in the face of the massive decline in existing home sales on Tuesday morning. We continue to think that the September Nasdaq is poised for a retest of the 1750 level but the market might see a temporary bounce this morning before resuming the downside track in prices.

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) 08/25/2010: Momentum studies are still bearish but are now at oversold levels and will tend to support reversal action if it occurs. The market's close below the 9-day moving average is an indication the shortterm trend remains negative. There could be some early pressure today given the market's negative setup with the close below the 2nd swing support. The next downside objective is 1031.00. The market is approaching oversold levels on an RSI reading under 30. The next area of resistance is around 1060.50 and 1073.80, while 1st support hits today at 1039.10 and below there at 1031.00.

S&P E-MINI (SEP) 08/25/2010: Daily stochastics declining into oversold territory suggest the selling may be drying up soon. A negative signal for trend short-term was given on a close under the 9-bar moving average. There could be some early pressure today given the market's negative setup with the close below the 2nd swing support. The next downside objective is 1030.57. With a reading under 30, the 9-day RSI is approaching oversold levels. The next area of resistance is around 1060.62 and 1074.06, while 1st support hits today at 1038.88 and below there at 1030.57.

NASDAQ (SEP) 08/25/2010: Daily stochastics declining into oversold territory suggest the selling may be drying up soon. The close below the 9-day moving average is a negative short-term indicator for trend. The defensive setup, with the close under the 2nd swing support, could cause some early weakness. The next downside objective is now at 1738.32. With a reading under 30, the 9-day RSI is approaching oversold levels. The next area of resistance is around 1795.12 and 1823.81, while 1st support hits today at 1752.38 and below there at 1738.32. 

DOW (SEP) 08/25/2010: 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. There could be some early pressure today given the market's negative setup with the close below the 2nd swing support. The next downside target is 9956. The market is approaching oversold levels on an RSI reading under 30. The next area of resistance is around 10109 and 10192, while 1st support hits today at 9991 and below there at 9956. 

MINI-RUSSELL 2000 (SEP) 08/25/2010: Momentum studies are declining, but have fallen to oversold levels. 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 now at 579.1. Some caution in pressing the downside is warranted with the RSI under 30. The next area of resistance is around 602.7 and 610.0, while 1st support hits today at 587.3 and below there at 579.1. 

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