The Market Can Short Cover But We Doubt the Down Trend is Finished

OVERNIGHT CHANGES THROUGH 6:05 AM (CT): S&P 500 +1260, DOW +99

The stock market is seemingly charging higher because of a slightly positive Chinese purchasing manager's release overnight but that action would seem to fly in the face of recent expectations that mostly call for slack readings from the US ISM report and also for generally slack figures from two private employment surveys due out later this morning. With the markets also seeing somewhat slack UK growth readings and a decline in German retail sales overnight, the trade instead seems instead to have embraced a solid growth reading from Australia. In short, the markets seem to be taking their early direction from the Pacific Rim and not from the European or US economic conditions. Perhaps talk of a private buyout of a US fast food giant is providing a lift off the merger and buyout angle again. Therefore the equity markets seem to have been distracted away from the recent entrenched fear of slowing, but the trade might find it difficult to ignore economic slowing fears later today in the wake of a long string of economic readings.

S&P 500: The S&P is also showing a somewhat impressive upside reaction to minimally positive Chinese PMI readings overnight and that would suggest that the market temporarily over extended itself into this week's initial lows. We suspect that the S&P is also benefiting from fresh buyout news and also because of Australian economic readings, but the S&P does appear to be facing a significant amount of overhead resistance on the charts from the directionless trading range of the last three months. Critical support in the September S&P isn't seen until 1050.00 and then again down at 1044.80.

DOW: With the Mini Dow showing a rather definitive recovery bounce this morning it is apparent that some type of shift in sentiment has taken place overnight. Some traders suggest that the market was simply oversold, while others suggest that residual international strength is capable of supporting equity prices. Perhaps the market is garnering some support from the Burger King private equity buyout rumors and therefore the real test of the bull case might be seen in the wake of the early US number flow later today. At least for the time being, the market seems to have carved out some form of consolidation zone on the charts just under the even number 10,000 level, but given the breadth of economic readings due out over the coming three trading sessions, there might be expanded volatility ahead.

NASDAQ: While the Nasdaq might be expected to garner some support from the Chinese PMI readings and perhaps from the fresh merger and buyout news from overnight, the overall outlook for the global economy is expected to remain the primary driving force for equity prices. Some traders think that the Nasdaq could be undermined in the wake of slack US August auto sales figures that will be released later today. Perhaps the Nasdaq reached a short term oversold technical condition on the lows yesterday, but with volumes very low this week there did not appear to be a large measure of buying interest interested in picking up cheaper valuations in the market. In order to extend the Chinese inspired bounce, in the US Wednesday trade, probably requires one or two slightly better than expected US reports. Critical support in the September Nasdaq is seen at 1773.75, with somewhat lower and more solid consolidation support pegged at 1763.00. 

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) 09/01/2010: A bullish signal was given with an upside crossover of the daily stochastics. Daily momentum studies are on the rise from low levels and should accelerate a move higher on a push through the 1st swing resistance. The market's close below the 9-day moving average is an indication the short-term trend remains negative. The daily closing price reversal up on the daily chart is somewhat 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 1065.87. The next area of resistance is around 1060.84 and 1065.87, while 1st support hits today at 1044.15 and below there at 1032.48.

S&P E-MINI (SEP) 09/01/2010: The crossover up in the daily stochastics is a bullish signal. 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 upside closing price reversal on the daily chart is somewhat bullish. It is a mildly bullish indicator that the market closed over the pivot swing number. The next upside objective is 1066.06. The next area of resistance is around 1061.12 and 1066.06, while 1st support hits today at 1044.38 and below there at 1032.57.

NASDAQ (SEP) 09/01/2010: The crossover up in the daily stochastics is a bullish signal. Daily momentum studies are on the rise from low levels and should accelerate a move higher on a push through the 1st swing resistance. The close below the 9-day moving average is a negative short-term indicator for trend. The daily closing price reversal up is a positive indicator that could support higher prices. The market's close below the pivot swing number is a mildly negative setup. The next upside target is 1797.75. The next area of resistance is around 1786.50 and 1797.75, while 1st support hits today at 1759.50 and below there at 1743.75. 

DOW (SEP) 09/01/2010: Momentum studies are still bearish but are now at oversold levels and will tend to support reversal action if it occurs. The market's 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 9873. The next area of resistance is around 10017 and 10054, while 1st support hits today at 9927 and below there at 9873. 

MINI-RUSSELL 2000 (SEP) 09/01/2010: 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 upside daily closing price reversal gives the market a bullish tilt. The market's close below the pivot swing number is a mildly negative setup. The near-term upside target is at 615.7. The next area of resistance is around 610.3 and 615.7, while 1st support hits today at 597.1 and below there at 589.4. 

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