Less Euro Zone Uncertainty More US Economic Uncertainty

OVERNIGHT CHANGES THROUGH 6:05 AM (CT): S&P 500 +0, DOW -2

The stock market forged a big range down reversal in the prior trading session as the trade was obviously undermined by the very disappointing US economic readings. However, if the market hadn't seen the US economic report slate yesterday, the stock market could have forged a massive range up rally off the favorable news from the Euro zone. However, since one can't simply ignore the economy, and the numbers are seemingly still turning south one has to view any bottoming signal as suspect. On the other hand, various technical signals in the S&P point to the potential for a temporary bottoming, as the RSI reached the lowest level March of 2009 and stochastics are in the strongest buy posture since February of this year. The bear camp might acknowledge the oversold technical status, but then rightfully argue that the fundamentals justify more downside ahead. We continue to think that longs have limited reward for a pretty high risk, but seeing the US economy as the worst problem, instead of the Euro zone debt contagion issue is at least something we have some power over. Unfortunately most of Washington has taken a vow to dedicate a large portion of any stimulus to extend unemployment benefits and as of yet the unemployed haven't started their own businesses or have then started to hire people to perpetuate the recovery. If this Congress doesn't provide a serious effective stimulus soon, that should insure we have a number of fresh faces in Congress in November.

S&P 500: With the S&P already net spec short in the last COT positioning report and the S&P to the low Thursday falling another 85 points, it is possible that the S&P has the biggest short since the beginning of the sub-prime crisis. Unfortunately the fundamental outlook is still very difficult to shape into a positive and the best one can hope for is a marginal short covering effort or perhaps only a sideways chop because of thinned holiday trading. Unless the market can see something, not in current view to most of the market, the report today probably favors the bear camp. Critical support levels this morning in the S&P are 1019.80 and then again down at 1015.00.

DOW: As in the rest of the markets, the Mini Dow is obviously oversold technically but we are not totally convinced that the market is fundamentally poised to forge anything but a short covering bounce. In order to forge anything more than a mechanical bounce probably requires some type of headline bounce and since the current Administration doesn't favor classic economic theory and they still see Wall Street as the problem, few are expecting anything positive to come for big business. Therefore the bull camp is left hoping for a long shot fundamental boost like an early relief well success in the Gulf and or a surprise shift in Washington thinking. In short, the market might bounce but it will have to avoid a concerning payroll reading early today or the selling will resume.

NASDAQ: Technically the Nasdaq reached a short term oversold junction in the prior trading session and with the bounce off the low some of the overdone status was relieved. However, from a fundamental perspective it would seem like the bull camp is still set to face a firing squad this morning in the wake of the monthly Non Farm payroll report. The bulls suggest that a bad number is priced and the bear camp suggests that the market was partially distracted from the slowing in the US economy yesterday because of the positive Euro zone vibe. Therefore the die is cast for an important decision on whether yesterday's lows are close to factoring a slow down, or if more downside work is needed. As long as the Non Farm payroll loss isn't above 115,000 jobs, yesterday's lows should hold.

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) 07/02/2010: 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 tilt is slightly negative with the close under the pivot. The next downside target is now at 997.18. The market is approaching oversold levels on an RSI reading under 30. The next area of resistance is around 1033.65 and 1042.97, while 1st support hits today at 1010.75 and below there at 997.18.  

S&P E-MINI (SEP) 07/02/2010: Momentum studies are still bearish but are now at oversold levels and will tend to support reversal action if it occurs. The close below the 9-day moving average is a negative short-term indicator for trend. It is a slightly negative indicator that the close was lower than the pivot swing number. The next downside objective is 996.44. The market is approaching oversold levels on an RSI reading under 30. The next area of resistance is around 1034.37 and 1043.93, while 1st support hits today at 1010.63 and below there at 996.44.

NASDAQ (SEP) 07/02/2010: The downside crossover (9 below 18) of the moving averages suggests a developing short-term downtrend. 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 market's close below the pivot swing number is a mildly negative setup. The next downside objective is 1677.00. The market is approaching oversold levels on an RSI reading under 30. The next area of resistance is around 1753.00 and 1773.00, while 1st support hits today at 1705.00 and below there at 1677.00.

DOW (SEP) 07/02/2010: A negative indicator was given with the downside crossover of the 9 and 18 bar moving average. 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. The upside closing price reversal on the daily chart is somewhat bullish. It is a slightly negative indicator that the close was under the swing pivot. The next downside objective is now at 9609. The market is approaching oversold levels on an RSI reading under 30. The next area of resistance is around 9766 and 9794, while 1st support hits today at 9674 and below there at 9609. 

MINI-RUSSELL 2000 (SEP) 07/02/2010: 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. It is a slightly negative indicator that the close was lower than the pivot swing number. The next downside target is 577.7. Some caution in pressing the downside is warranted with the RSI under 30. The next area of resistance is around 613.6 and 623.3, while 1st support hits today at 590.8 and below there at 577.7. 

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