Market Jumps Higher to Kick Off Shortened Week

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

Market Jumps Higher to Kick Off Shortened Week

(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! Despite a hesitant open, the market really took off on Monday morning. The indices had been poised to open substantially lower when I wrote Monday's column. They had broken down out of a low-level pace with pace favoring the bears. Once the S&P 500 e-mini futures hit equal move support on the all-sessions time frame at 2:00 am ET, however, the market mounted a rapid recovery. The indices took about an hour to roll over off lows, but by the time the 3:00 ET correction period hit they were ready to rock and roll.

The premarket recovery was a swift one. Two waves of upside on the 15 minute charts took the S&Ps back into Friday's afternoon highs. The index futures did create a corrective pattern coming off that resistance. This can be seen perhaps the best in the S&Ps where a solid momentum reversal was formed that triggered into 8:30 am ET. The momentum began to shift around 6:15 ET and this eventually led to a rapid drop into the opening bell from a small Avalanche on the 5 minute charts that triggered at about the same time as the bell.

Dow Jones Industrial Average ($DJI)


The indices experienced strong follow-through on the opening short setup. The Nasdaq had swapped places with the S&Ps and Dow and was the weakest of the three major indices on Monday morning. It continued to fall out of the open until running smack into strong price support from the 2:00 am ET premarket lows. This level hit at about 10:00 am ET and this time zone held the lows in the S&Ps and Dow as well as the Nasdaq e-minis.

The market turned very quickly higher off the morning lows. The reversal was more rapid than in the premarket. The indices shot higher and established an average day's range in a matter of minutes. The yield on the 10-year Treasury note fell to 3.49% from 3.51% on Friday and this translated into lower interest rates. The financials did very well as a result.

S&P 500 ($SPX)


The indices stalled around 10:45 ET and held resistance quite well for the remainder of the session. The 5 minute 20 sma served as initial support, but only the Dow showed a decent reactionary move. The morning's upside extension prevented the indices from pushing much highs. The Dow formed a double top into the early afternoon and the indices moved lower into the early afternoon. A 5 minute Avalanche out of the 14:00 ET correction period took the indices into 15 minute 20 sma support, but the market failed hug the support and instead the Dow and S&Ps returned to the upper end of the trading range intraday and then broke lower into the final correction period at 15:30 ET. The 5 minute 200 sma served as support in the Nasdaq. None of the late-day action was strong enough to break the indices out of the afternoon's range throughout the remainder of the trading day (including afterhours trade.)

Nasdaq Composite ($COMPX)


The remainder of the week will be a busy one for the markets on the economic front, but lighter in terms of volume due to the shortened trading week. The U.S. markets will be closed on Friday in celebration of the Fourth of July. Before that, however, are a slew of economic reports 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.

The Dow Jones Industrial Average ($DJI) rose 90.99 points, or 1.08%, to close at 8,529.38 on Monday. Tuesday will kick off the unofficial start of second quarter earnings season with the release of aluminum maker Alcoa's (AA) earnings. It was the only Dow component to post losses on Monday, falling 2.97%. Hewlett-Packard (HPQ) was the strongest component with a gain of 3.64%, followed by a 3.45% gain in Bank of America (BAC), and a 3.15% gain in Merck (MRK).

The S&P 500 ($SPX) rose 8.33 points, or 0.91%, and closed at 927.23. Crude oil futures were on the rise again from $69.16 a barrel to $71.49 a barrel, but it remains in a congestive zone on the daily time frame that can easily last for several more weeks due to the 200 day simple moving average resistance lingering overhead.

The Nasdaq Composite ($COMPX) rose 5.84 points, or 0.32%, and it closed at 1,844.06 on Monday.

My larger daily outlook continues to be in favor of a larger time frame correction in the making. The pace of the current correction higher off the daily support is enough to allow the markets to attempt a retest of the highs or even a slightly higher high, but this would merely serve to shift the pace of the buying even further and increase the risk for a more rapid price correction on the weekly time frame as opposed to a correction over time with an extended congestion zone.

Forex Outlook:
The GBP/USD pair saw a strong breakout trigger as a buy signal on Monday. This is the most technically sound setup among the currency pairs, but the trend placement is not as ideal as the smaller daily pattern suggest. The larger weekly chart has strong potential to form a cup-with-handle, so I am not expecting as strong of follow-through as the run last month.
The NZD/USD pair also broke higher on Monday. This will be the third leg up on the daily time frame, but the momentum is not likely to be as strong as the previous run into the start of this month.
The USD/JPY is forming a weekly Phoenix™.
The USD/CHF is forming a weekly bear flag, but can easily hold the congestion for another month. It was only a few days ago that China urged the creation of a new international currency, but backtracked off the hard-line on Monday morning and stated that it didn't wish to see any sudden policy changes.