More Short Covering Possible Especially If Any $ # is Positive

OVERNIGHT CHANGES THROUGH 6:05 AM (CT): S&P 500 -90, DOW -9

While the stock market seems to have been oversold and expecting very bad economic conditions, the magnitude of the recovery rally yesterday probably sent a message to the bear camp. In addition to the sharp across the board rally in equities, the trade was clearly assisted by much better than expected ISM readings and that seemed to foster some respect for the resiliency of the US economy. However, in order to throw off prevailing concerns of slowing, the equities will probably need to see something positive from the US data again this morning. With an outgoing Fed member suggesting that one should not assume that the Fed is automatically poised to invoke additional stimulus, the market could have been disappointed, but seeing better than expected economic readings has potentially reduced the "need" for assistance from the Federal Reserve. In short, the bull camp would seem to need some additional help from the numbers to add to the very impressive short covering effort that was seen yesterday.  

S&P 500: It would appear that the bear tilt was overstated as the magnitude of the rally yesterday seems to highlight a market that was crossed up by the number flow. One gets the sense that the bull camp might only need one positive reading from the flurry of data points this morning, to continue to claim that economic conditions aren't as bad as previously expected. However, the market is also facing a major number on Friday morning and therefore prices can waffle in either direction, before a more significant economic decision is seen in the wake of the Friday data. For today, the September S&P could use the 1075.00 level as a quasi solid support point, especially if there is anything positive in any of the US numbers this morning. 

DOW: The bull camp will suggest that the September Mini Dow managed to regain its 50 day moving average yesterday and that serves to shift the trend back up. However, the bear camp is suggesting that the numbers seen yesterday were an anomaly or that the economy remains very weak regardless of pockets of strength. It does seem as is expectations on the economy were overly negative, as a slightly better than expected 2nd tier economic reading seems to have erased several weeks of mostly negative data flows. While the September Mini Dow did regain its 50 day moving average yesterday, the market only sits at the center of the last two months trading range. Since the market only needs one positive economic report out of the flurry of readings scheduled for release today, it is possible that the bull camp will get some help, which in turn could put prices high enough to see a more pronounced negative reaction to the US Friday numbers.

NASDAQ: Unlike the Mini Dow, the Nasdaq was unable to charge back above its 50 day moving average y and the Index this morning starts the early trade below the 50 day moving average point. However, the market is hopeful of more positive news from the buyout front and perhaps even some ongoing assistance from the tech sector, as several companies continue to be in play from the merger and buy out angle. Some players might even point to favorable Euro zone economic readings overnight as a factor giving the bull camp an initial leg up today. However, given the sharp run up yesterday, it is possible that the bull camp will need some clear cut additional help from the scheduled numbers to solidify a better economic view. Critical support in the September Nasdaq is seen at 1814.00 but we can't rule out an attempt to extend the rally ahead of the Friday payroll readings. 

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) 09/02/2010: The cross over and close above the 60-day moving average indicates the longerterm trend has turned up. The crossover up in the daily stochastics is a bullish signal. Momentum studies are rising from mid-range, which could accelerate a move higher if resistance levels are penetrated. The cross over and close above the 18-day moving average indicates the intermediate-term trend has turned up. The market has a bullish tilt coming into today's trade with the close above the 2nd swing resistance. The near-term upside objective is at 1105.55. The next area of resistance is around 1097.40 and 1105.55, while 1st support hits today at 1066.00 and below there at 1042.75. 

S&P E-MINI (SEP) 09/02/2010: The cross over and close above the 60-day moving average is an indication the longer-term trend has turned positive. The daily stochastics gave a bullish indicator with a crossover up. Momentum studies are trending higher from mid-range, which should support a move higher if resistance levels are penetrated. The market now above the 18-day moving average suggests the intermediate-term trend has turned up. Since the close was above the 2nd swing resistance number, the market's posture is bullish and could see more upside follow-through early in the session. The near-term upside objective is at 1105.93. The next area of resistance is around 1097.62 and 1105.93, while 1st support hits today at 1065.88 and below there at 1042.44. 

NASDAQ (SEP) 09/02/2010: Positive momentum studies in the neutral zone will tend to reinforce higher price action. The market now above the 18-day moving average suggests the intermediate-term trend has turned up. Since the close was above the 2nd swing resistance number, the market's posture is bullish and could see more upside follow-through early in the session. The near-term upside objective is at 1863.87. The next area of resistance is around 1847.25 and 1863.87, while 1st support hits today at 1792.75 and below there at 1754.88. 

DOW (SEP) 09/02/2010: The stochastics indicators are rising from oversold levels, which is bullish and should support higher prices. The market's close above the 9-day moving average suggests the short-term trend remains positive. The gap up on the day session chart gave a bullish indicator and more follow through could be seen this session. Since the close was above the 2nd swing resistance number, the market's posture is bullish and could see more upside follow-through early in the session. The next upside objective is 10196. The next area of resistance is around 10166 and 10196, while 1st support hits today at 10064 and below there at 9992. 

MINI-RUSSELL 2000 (SEP) 09/02/2010: Momentum studies are trending higher from mid-range, which should support a move higher if resistance levels are penetrated. The intermediate trend could be turning up with the close back above the 18-day moving average. There could be more upside follow through since the market closed above the 2nd swing resistance. The next upside objective is 641.9. The next area of resistance is around 635.1 and 641.9, while 1st support hits today at 612.7 and below there at 597.0. 

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