The Bears Have the Technical and Fundamental Edge to Start the Week

OVERNIGHT CHANGES THROUGH 6:05 AM (CT): S&P 500 -460, DOW -32

The stock market is showing some initial weakness this morning but it would not appear as if the market is poised for a major washout perhaps because some sellers will be afraid to sell into the market ahead of the earnings kick off after the close today. However, the markets are fresh off a rather impressive run up over the prior four trading sessions and that should leave most measures technically overbought and vulnerable. At this early hour one can't tell just how concerned the market is toward the Euro zone debt situation but credit spreads are widening there and data released overnight has to some degree rekindled the fear of a double dip recession. In short, the market is overbought, somewhat anxiety ridden and the outlook for the US and global economy is more or less a negative to stock prices. However, with Alcoa earnings due out after the close today and the earnings cycle coming into full view, it is possible that the market will attempt to hold its ground before knocking prices back toward the early June lows.

S&P 500: The S&P also enters the new week within relative distance to its recent highs but in a corrective posture. After last week's rather impressive rally, the market would seem to be in need of some back and fill balancing. From a fundamental perspective a number of traders had difficulty rationalizing the gains last week and the kick off to earnings season after the close today, could be seen as a moderately importance crossroads. We think earnings have to be definitively supportive to avoid a sharp slide in the September S&P back down to the 1050.00 and below zone. The Commitments of Traders Futures and Options report as of July 6th for S&P 500 Stock Index showed Non-Commercial traders were net short 31,750 contracts, an increase of 15,891 contracts. The Commercial traders were net long 38,580 contracts, an increase of 14,833 contracts. The Non-reportable traders were net short 6,830 contracts, a decrease of 1,057 contracts. Non-Commercial and Non-reportable combined traders held a net short position of 38,580 contracts. This represents an increase of 14,834 contracts in the net short position held by these traders.

DOW: The Mini Dow enters the new trading week within striking distance of last week's highs but tracking in a downward motion. Clearly the market is at least partially undermined as a result of the European action and developments overnight and when that is combined with a rather slack US economic outlook, one gets the impression that the bear camp has many more cards than the bull camp. The Commitments of Traders Futures and Options report as of July 6th for Dow Jones Index $5 showed that the Non-Commercial and Non-reportable combined traders held a net long position of 3,896 contracts. Since the market enters this morning's action above the level where the COT report was measured, that could mean that the net spec long positioning is probably understated. Our pick for a near term slide on the downside is at least 10,051 today, but for the week we can't rule out a downside target of 9,888.

NASDAQ: While the Nasdaq enters the new week sitting within close proximity to last week's highs, it will be a very surprising trick for the market to hold together over the coming trading sessions. In addition to a short term overbought technical condition from the sharp rally last week, the Nasdaq appears to be lagging behind the general market on rallies and leading the market on dips. Countervailing the fundamental vulnerability of the Nasdaq is news that the Commitments of Traders Futures and Options report as of July 6th for Nasdaq Mini showed the Non-Commercial and Non-reportable combined traders were holding a net short position of 27,635 contracts. Out pick for a near term downside target in the September Nasdaq is 1776.75.

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) 07/12/2010: Stochastics are at mid-range but trending higher, which should reinforce a move higher if resistance levels are taken out. The close above the 9-day moving average is a positive short-term indicator for trend. The market has a slightly positive tilt with the close over the swing pivot. The next upside objective is 1081.77. The next area of resistance is around 1076.85 and 1081.77, while 1st support hits today at 1065.15 and below there at 1058.38.

S&P E-MINI (SEP) 07/12/2010: Momentum studies are trending higher from mid-range, which should support a move higher if resistance levels are penetrated. The close above the 9-day moving average is a positive shortterm indicator for trend. It is a mildly bullish indicator that the market closed over the pivot swing number. The next upside objective is 1082.43. The next area of resistance is around 1078.12 and 1082.43, while 1st support hits today at 1066.38 and below there at 1058.94.

NASDAQ (SEP) 07/12/2010: Momentum studies are rising from mid-range, which could accelerate a move higher if resistance levels are penetrated. The market's close above the 9-day moving average suggests the short-term trend remains positive. With the close higher than the pivot swing number, the market is in a slightly bullish posture. The near-term upside objective is at 1833.93. The next area of resistance is around 1825.62 and 1833.93, while 1st support hits today at 1799.38 and below there at 1781.44.

DOW (SEP) 07/12/2010: Stochastics are at mid-range but trending higher, which should reinforce a move higher if resistance levels are taken out. The market's short-term trend is positive on the close above the 9-day moving average. The daily closing price reversal down is a negative indicator for prices. The market has a slightly positive tilt with the close over the swing pivot. The next upside target is 10115. The next area of resistance is around 10095 and 10115, while 1st support hits today at 10055 and below there at 10034.

MINI-RUSSELL 2000 (SEP) 07/12/2010: Momentum studies are trending higher from mid-range, which should  support a move higher if resistance levels are penetrated. A positive signal for trend short-term was given on a close over the 9-bar moving average. The market setup is supportive for early gains with the close over the 1st swing resistance. The near-term upside objective is at 635.7. The next area of resistance is around 631.3 and 635.7, while 1st support hits today at 619.1 and below there at 611.2.

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