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Global Trade Desk- Weakness To Prevail Ahead Of Earnings

Daily Client Note

Equity Indices Review Review

Global Trade Desk- Weakness to prevail ahead of Earnings

A near-term signal was generated on S&P 500 futures trade on Jun 22 11, with a break lower from 1275 that targets 1270 and 1262. It has to be noted that the month of June has created four trade signals, two long and two short, from the current price point on S&P 500 trade. The indication is that June may finish the month stuck in the trade channel between 1250 support and 1290 resistance. 

The mid-term trend is short, and has set up a sell-the-test-of- resistance pattern that followed through, again, ahead of US employment data. S&P 500 trade has been trading through the pivotal 1250 area since 1998. Now is not the time to be looking for long-equity positions. There will be no new mid-term signals generated until a Weekly chart can close above 1295 or below 1250. In between, investors and traders will see the path of least resistance very likely to be a move lower in S&P 500 valuations.

The FOMC rate statement and Question and Answer puppet show dominated equity market sentiment, but ahead of Q2 Earnings Season that will be dominated by guidance more than results the market may soon forget Ben Bernanke and the Federal Reserve.
It is hard to see how the markets will be able to buy into forward equity guidance that has no more fat to cut, and no more stories to tell that will be easily swallowed by an ever-skeptical general public. Massive redemption numbers from Mutual and Hedge Funds are starting to once again prove that average Joe has had enough of an average Wall Street.

Where To Now For S&P 500?:
•    S&P 500 generated a mid-term sell signal from 1340 on Jun 01 2011, which has still not yet signaled to close 
•    Generated a near-term sell signal on Jun 22 11, with a break lower from 1275 that targets 1270 and 1262
•    In a very strong short cycle that will not reverse any of the near or mid-term short trends until a Weekly chart can close above 1290
•    Downside targets will include 1247 and 1239 if S&P 500 trade closes a Weekly chart  below 1250
•    Expect upside tests of 1285-1290 resistance to fail, again,  if massive buying volume does not hit the market soon
•    Low-volume ramps higher are creating subsequent price action weakness when volume increases on the down days
•    A strong short-sentiment still dominates in the near-term
•    This review of technical sentiment is signaling to sell the S&P 500 on any upside tests of resistance

S&P 500 Correlations:
Daily trading range on S&P 500 is 17 points, which is above the historical norm and indicates that volatility is increasing, in low-volume markets. S&P 500 200-day Simple Moving Average (NYSE:SMA) is at 1250. S&P 500 price action has a 36-month 75% correlation to crude oil moves, and a 90% correlation to the aussie (Aud/Usd) currency pair.

Previous Signals:
Last three months of potential Equity Indices trade signals have generated ten trades, nine of which have completed, that covered 99 points of overall movement. Any misses have come on days that instant volatility hit the global markets in reaction to breaking news headlines. Most signals have been generated from 1-hour chart algorithms.

Alternate 24-Hour Trade:
Investors who do not want to wait for their regional cash market to open, or do not have 24-hour access to the market they have open positions in, are able to access the 24-hour currency market. There is potential to analyze and trade currencies in a high-volume market that is supported by the global inter-bank system.

Investors can trade currencies in-line with a rising global market, or trade ahead of a falling cash market open. Being able to use currencies offers the opportunity to be in a trade before the regional market opens.

Traders could trade the currency pair EUR/USD in-line with the potential seen in global equity movement. Buying the US dollar and selling the euro on days of major equity weakness is a simple process of placing a sell order on EUR/USD. That same position can then be managed in a similar way that equity trades would be bought and sold.

Subscribers received S&P 500 trade signals to sell from 1285, targeting 1283 and 1275, which have completed. At the same time trade signals were issued to sell SPY (the ETF that tracks S&P 500) from 129.10, which has also hit its targets. The subsequent forex trade signal was to sell EUR/USD from 1.4375, targeting 1.4300, which has also hit its target, proving how simple the trade desk methodology is to follow.

If global markets favor the selling of S&P 500 futures from 1270, a trade signal on EUR/USD would be issued. Selling EUR/USD from 1.4250 targets 1.4190 and 1.4110. The subsequent target will be 1.4000 if S&P 500 trade moves down and closes this week below 1250.

S&P 500 Technical Section:

S&P 500 4 Hour Chart:
Bounced off the high  of the previous week and the swing point of March 2011. The 200-day SMA is at 1255 support. Linear trend-line resistance at 1285  

ABC potential:
A leg lower from 1340 to 1265 completed. B leg higher to test 1295 completed. C leg has potential to target 1230 if a Weekly chart can close below 1250.

Call to action: Look to sell the upside tests of resistance between 1285 and 1290, again, just as clients were told to do today.

S&P500 Support and Resistance: 
Strong trading activity has been seen at 1250 on S&P 500 trade going back to 1998. The market has recently moved lower and tested this major swing point area, and bounced off support. Sentiment and momentum will be closely monitored for further re-tests of support that fail. Real-time market alerts and updates will be sent to subscribers when the reaction to a test of 1270 support is seen and confirmed.
Main S&P500 resistance is at 1290. Main S&P 500 support is at 1250.

Exchange Traded Fund (NYSEARCA:SLV) Outlook:
SPY (128.60), the exchange traded fund (ETF) that tracks S&P 500 momentum, looks set to continue its choppy and volatile mid-term trading pattern, in-line with global equity trade that is generating increasing daily volatility as stocks struggle to find fair value and fail to break resistance.

No long signals will form until a Weekly chart can close above 130.50. No new short signals will form until a Weekly chart can close below 128.30.

Any existing SPY positions should be closely monitored while recent price action is absorbed. SPY may struggle to offer a fair reflection of the choppy 24-hour moves currently being seen in equity indices futures trade. The Weekly chart close may offer some clarity.

Main SPY support: 128.00. Main SPY resistance: 134.00.