Busy, but Shortened Trading Week Ahead

Today's Commentary:
Note: Current contract month for the futures is now September.

Busy, Shortened Trading Week Ahead

(Note: Unless otherwise stated, the index action described below relates to the EMini futures contracts for the respective indices. Actual index action may differ slightly in terms of pattern formation, although the market bias will remain the same.)

Good day! Last week ended on a very slow note, but this week will prove to be a busy one on the economic front. The week will be a shortened one due to the 4th of July holiday. The 4th falls on a Saturday this year, so the U.S. exchanges will be closed on Friday, July 3rd. The market will pack in most of its news on Tuesday-Thursday, beginning with Tuesday's Conference Board Consumer Confidence numbers. These are expected to show some improvement for June, but data on Friday has already shown us that consumers are still very leery to part with their hard-earned cash as unemployment rates close in on 10%. Consumer saving hit a 15-year high of 6.9% in May. Meanwhile, consumer spending was up 0.3% for the first time in 3 months, but shows no drastic improvement in sentiment. On Wednesday the ISM's Manufacturing results will shed further light on the state of the economy. This will be followed on Thursday by the Bureau of Labor Statistics publishing the official estimates for Nonfarm Payrolls.

Dow Jones Industrial Average ($DJI)


The indices gapped down slightly into Friday's opening bell, but quickly closed the morning gap. In the previous session the indices had rallied sharply in the morning and then fell into a range into the close. The gap lower into Friday merely continued the previous day's range, so the closure of the gap itself simply brought the market back to the upper end of the trading range. This level then served as resistance and the indices pulled back.

The correction off the 15 minute highs began strongly, but the initial rally was still stronger and the pace of the selling slowed as the market came back into its opening levels. Another brief pop followed out of the 10:15 ET correction period, but it was also short-lived. The correction off that high, however, was more gradual than the first and created a two-wave buy setup on the 5 minute time frame shortly after 11:00 am ET.

S&P 500 ($SPX)


Even though the indices did not take off strongly out of the 11:00 ET upside trigger, the market did remain above that low throughout the rest of the day. A Cup-with-Handle on the 5 minute charts followed into noon, but the market had a difficult time finding strong footing to mount a strong intraday trend lasting more than 15 minutes. The S&P 500 and Dow Jones Ind. Ave. tried again out of 14:30 ET and managed to close in on their morning highs, but they fell back into the close. A low-level base then developed in Sunday's session in the index futures, which broke lower into midnight and leaves the indices weak heading into Monday.

Nasdaq Composite ($COMPX)


The Dow Jones Industrial Average ($DJI) fell 34.01 points, or 0.40%, to close at 8,438.39 on Friday. The Dow ended the week lower by 1.2%. About 2/3 of the index components lost ground on Friday, with American Express (AXP) as the biggest loser. It fell 2.78%. Microsoft (MSFT) was the next biggest loser and fell 1.85%. The strongest index component on Friday was Bank of America (BAC), which rose 3.24%, followed by a 1.62% gain in Merck (MRK).

The S&P 500 ($SPX) fell 1.36 points, or 0.15%, and closed at 918.90. Crude oil futures fell from $70.23 a barrel to $69.16 on Friday, but remains higher by 4.30% so far this month. Gasoline averaged $2.658 nationally on Friday. This was down slightly from the previous day.

The Nasdaq Composite ($COMPX) rose 8.68 points, or 0.47%, and it closed at 1,838.22 on Friday.

Also of interest is that the 10-year Treasury yield fell to 3.51% from 3.55% on Friday. This impacts the current mortgage rates which are now down slightly from an average of 5.5% on a 30-yr fixed rate loan on Thursday to an average of 5.46% on Friday.

Thanks to the rapid decline off June highs, the indices are currently forming what can easily turn into a Head & Shoulders pattern on the 60 minute time frame with the first should beginning in early May. I am continuing to expect this zone of weekly and monthly resistance to hold, so I am treating all buy setups with greater caution that scales up according to the time frames. We can still get good daytrades on the upside, but risk increases as the time frame increases. Buy setups as swing and position trades hold the greatest level of risk in securities that follow the three major indices even though the market is currently reacting to a fairly strong level of daily support. The first half of this week will see the greatest activity, but expect volume to drop off as we head into the three-day weekend. Thursday afternoon will be particularly slow.