Today, Tomorrow, and the Next

Wednesday was a monster day for the S&P, as the financials led the way with the XLF posting a 12% gain. The move higher coincided with another sharp decline in the price of oil. The move today was large, but the rally needs confirmation over the next few days. The SPY is trading in a channel, and we are currently sitting under resistance.

Thursday we hear earnings from BLK, KO, and JPM before the bell. At 8:30am, we see housing starts and jobless claims data. After the close, we hear earnings from GOOG, IBM, MSFT, and MER.

Friday is options expiration. We hear earnings before the bell from C, HON, and SLB.

SPX Support Levels
1226 ~ support the past 2 days
1219 ~ intraday low from summer of 2005

SPX Resistance Levels
declining trendline around 1240 ~ a proven resistance point upon last 5 hits
1273/74 ~ old support
1291/92 ~ old support

Over the Next Week or Two

StockTock believes that the overwhelming bearish sentiment is a ripe environment for a rally. However, oil prices remain near all-time highs and the market is yet to show signs of capitulation. With so many traders looking for a panic bottom and a spike in the VIX above 30, it is possible we see more of a slow rounded bottom. Technology shares have strong relative strength and should continue to outperform the S&P. The financials will not bottom until major bank failures come to fruition. IndyMac started the parade on Friday, and NCC and WM look like they may be next. Weakness in WB, LEH, MER are also raising red flags. There are rumors that LEH is going to be taken private, which begs the question: at what price?

After That

The S&P is in a bear market, and all rallies must be viewed as counter-trend moves until we see confirmation that a bottom has been made. The long-term outlook is dependent on the price of oil and developments 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. The financials and housing sectors are also not out of the woods yet. The financials will not bottom until major bank failures come to fruition. IndyMac started the parade on Friday, and NCC and WM look like they may be next. Weakness in WB, LEH, MER are also raising red flags. There are rumors that LEH is going to be taken private, which begs the question: at what price?

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