A Temporary Pause in the Selling But the Trend Remains Down

OVERNIGHT CHANGES THROUGH 6:05 AM (CT): S&P 500 -80, DOW -1

While the stock markets forged a classic hard down reversal on Friday, the overall macro economic outlook just doesn't feel like the decks have been totally cleared of macro economic pessimism. However, the formation on Friday can be good for a 2-3 day corrective bounce and with the international markets seemingly less concerned about sovereign debt issues and the US Treasury Secretary playing down the prospects of a US debt down grade, it is not surprising to see the bull camp with a slight edge at the start of the new week. However, in looking ahead to Bernanke testimony on the Fed's withdrawal intentions on Wednesday, the bull camp just doesn't look to have a large window of opportunity. In retrospect, the markets have suffered significant technical damage on the charts over the last month and we just don't get a sense that the trade is seeing enough favorable classically bullish fundamental news to end the down trend pattern. However, the trade should be able to attempt a bit of a bounce this morning, but without some fresh substantial headline development that gives the bull camp added resolve, we would suggest that traders be on the look out to sell coming strength.

S&P 500: While the S&P has forged a big range down reversal pattern and that type of action can sometimes result in a 2-3 day corrective bounce, we have to remain suspicious toward the bull track. In fact, seeing the March S&P fall back below the Thursday morning low, in the early action today, suggests that the market is having trouble holding up on the charts. For now, significant resistance is seen up at 1064.80 but we see the potential for another trip back below the 1050 level at some point later this week. With the Non Commercial and Non reportable positioning in the S&P seeing a net long below 10,000 contracts, and that positioning probably overstated the S&P is certainly becoming less vulnerable to aggressive stop loss selling.

DOW: As suggested already, the market appears to have made an exhaustion move on Friday, with prices ranging down sharply and then recovering from the new lows. However, it would appear that the 10,000 level presents some resistance to the market and therefore aggressive traders might consider getting short the March Mini Dow on a rally back to 10,017 perhaps in the Tuesday afternoon trade. Less sovereign debt fears and suggestions from the US Treasury Secretary that the US will not encounter a double dip recession, also seems to have given the market an initial bullish tilt today. However, we just don't see an overly positive tilt in the market and with the absence of critical technical data flows, we are not sure that the market will find the fundamental news to throw off what has become an entrenched down trend pattern.

NASDAQ: Clearly the Nasdaq has forged some form of a noted recovery off last week's new lows and that might give the bull camp a minimal edge in the early action today, but unfortunately we are not sure the bull camp is going to get enough additional news to prompt sustained bargain hunting buying. Some traders suggest that the market technically remains in a down trend, with the Nasdaq trading well under the 100 day moving average of 1776.50. However, under a slight improvement in the macro economic outlook, we suspect that the Nasdaq will outperform the rest of the market, but we doubt that the March Nasdaq will be able to mount a sustained rally above the 1758 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 (MAR) 02/08/2010: 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 market's close below the pivot swing number is a mildly negative setup. The next downside target is 1032.50. The next area of resistance is around 1071.60 and 1080.10, while 1st support hits today at 1047.80 and below there at 1032.50. 

S&P E-MINI (MAR) 02/08/2010: 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. The market tilt is slightly negative with the close under the pivot. The next downside objective is now at 1032.44. The next area of resistance is around 1072.62 and 1080.93, while 1st support hits today at 1048.38 and below there at 1032.44.

NASDAQ (MAR) 02/08/2010: Daily stochastics are trending lower but have declined into oversold territory. The market's short-term trend is negative as the close remains below the 9-day moving average. The daily closing price reversal up on the daily chart is somewhat positive. It is a slightly negative indicator that the close was under the swing pivot. The next downside objective is 1697.50. The next area of resistance is around 1764.00 and 1775.50, while 1st support hits today at 1725.00 and below there at 1697.50.

DOW (MAR) 02/08/2010: Momentum studies are declining, but have fallen to oversold levels. The market's shortterm trend is negative as the close remains below the 9-day moving average. The upside daily closing price reversal gives the market a bullish tilt. The market tilt is slightly negative with the close under the pivot. The next downside objective is 9862. The next area of resistance is around 10051 and 10081, while 1st support hits today at 9941 and below there at 9862.

RUSSELL 2000 (DEC) 12/22/2008: The major trend has turned down with the cross over back below the 40-day moving average. Momentum studies are trending higher but have entered overbought levels. The intermediate trend has turned down with the cross over back below the 18-day moving average. The gap lower on the day session chart is bearish and puts the market on the defensive. The defensive setup, with the close under the 2nd swing support, could cause some early weakness. The near-term upside target is at .0. The next area of resistance is around .0 and .0, while 1st support hits today at .0 and below there at .0.

CRUDE OIL COMMENTARY

ANY TECHNICAL BOUNCE IN OIL WILL BE LIMITED BY A BEARISH FUNDAMENTAL SETUP

OVERNIGHT CHANGES THROUGH 6:05 AM (CT): CRUDE +13

CRUDE OIL MARKET FUNDAMENTALS: Crude oil has attempted to bounce a bit in the early overnight trade, but with outside market support starting to fade ahead of the US day session, April crude oil has given back a good potion of those gains. Weather conditions may be providing some price support to oil this morning with a severe winter snow storm hitting the eastern US over the weekend and forecast for cold temperatures in the eastern two thirds of the US to boost heating demand over the next two weeks. Geopolitical supply side risk may also be another factor underpinning oil prices a bit after a militant attack on a Nigerian pipeline disrupted production and since tensions between Iran and Western powers over Iran's nuclear program continue to escalate. With April crude oil holding a test of the $70 price level last week, some degree of short covering seems possible following a nearly $8.75 price break from last week's high. But while a technically rally in April crude oil back to test resistance near $72.90 may be seen if outside markets provide enough support, we are very skeptical rally attempts in crude oil will hold. Since both the current fundamental and political regulatory environment for crude oil remains bearish, we still see crude oil vulnerable to downside price risk. The negatives that pressured April crude oil to a four month low last week are still in place including the risk for oil stocks to continue to build in the weeks ahead since refiners have cut the operating rate to a non-weather related 20 year low in response to weak US fuel demand. Last week's employment report showing higher than expected payroll losses over the last two months clearly shows the pace of economic recovery to be slow leaving the outlook for a recovery in oil demand weak. The outlook for global oil demand has been further undermined by China beginning to tighten credit and concerns sovereign debt problems in Europe will hinder growth in the region. But with lingering concerns over European sovereign debt default risk still giving the Dollar upside potential and with US equities looking to start out on shaky footing, we suspect the oil market could easily give up overnight gains and then some if outside market support begins to fade. We also suspect the harsh regulatory climate will still have traders selling into rallies instead of buying on dips, especially since macro economic sentiment has little chance to improve given the light economic report schedule until late in the week. Crude oil may seem oversold based on last week's break and since the Feb 2nd COT report with options for crude oil did show the combined fund and spec net long position falling by nearly 23,000 contracts as of early last week. But the COT report also showed the combined spec position to still be over 171,000 contracts net long as of early last week and that should leave the market with ample selling capacity if support levels fail to hold. The sell off in April crude oil from the January high has done significant damage to the chart that sets the market up for an eventual test of the September low near $68.40 and perhaps even the July low near $65. Therefore, until the macro economic outlook can significantly improve investor risk appetite, it looks as if rally attempts in April crude oil will end up being selling opportunities.

ENERGY COMPLEX 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.

CRUDE OIL (MAR) 02/08/2010: The stochastics indicators are rising from oversold levels, which is bullish and should support higher prices. The close below the 9-day moving average is a negative short-term indicator for trend. The market tilt is slightly negative with the close under the pivot. The next upside objective is 76.16. The next area of resistance is around 73.94 and 76.16, while 1st support hits today at 69.50 and below there at 67.28. 

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