Today, Tomorrow, and the Next

Thursday, the S&P managed a rally of more than 8 points despite continued weakness in financials and a considerable spike in the price of oil. The SPX closed at 1253.39, marking the 2nd consecutive close below the Bear Stearn’s intraday low of 1257. Technically, this confirms a breakdown to new lows, however, today’s candle did close positive and near the top of the day’s range, so it is not the most reliable of confirmation candles. This makes tomorrow’s close all the more important. Thursday’s action formed a W pattern, and it remains to be seen whether Friday can produce a V rally.

Friday, a close above 1257 will save the market on a weekly chart and will setup for a rally next week. Before the market opens, we will hear earnings from General Electric (GE).

SPX Support Levels

1236/1241 ~ this week’s support
1236 ~ closing low from the summer of 2005
1219 ~ intraday low from summer of 2005

SPX Resistance Levels

declining trendline between 1265 and 1260
1274 on the ES ~ a proven resistance point upon last 4 hits
1291 ~ resistance last week
1335 ~ support in previous range

Over the Next Week or Two

StockTock believes that the overwhelming bearish sentiment is a ripe environment for a rally. We are calling for a bounce over the next few weeks, at least to the 20 moving average above 1300. Technology shares have strong relative strength and should continue to outperform the S&P.

After That

The long-term outlook is dependent on the price of oil and developements in the credit markets. High energy prices are probably here to stay and it will take time for our economy to adjust to it. A continued move higher in oil prices is not priced into the markets. Credit market concerns continue to weigh on the markets and the financial sector will probably not hit bottom until there is a major bank failure.

The Market Outlook is updated each day as the charts fill out and provide more clarity.