By Mike Paulenoff, MPTrader.com
The S&P went to a new low at 1101 in the June contract in overnight trading after yesterday's decline. That low has held for now and, in fact, the entire session so far we have grinded and spurted to a high of 1118.
My earlier comments throughout the morning session were that if we get over 1113 and sustain above that, the odds favor a continuation that tests the trendline from last Friday's high, which was 1158 in the June contract. That trendline cuts across the price axis today at about 1120, so the consolidation we've had for the last 2-3 hours above 1113 should create just one more pop to test that 1120 area.
The 1120 area is just the trendline from last Friday. The 1121-1125 area is resistance from the prior rally peak and failure, which occurred on Thursday. So you can see we're getting towards a critical resistance zone, and if it's taken out then I think you can label today's low at 1101 as the low for the move that started a week ago.
Should that be the case then we should probably be in for upside continuation. We probably get a pullback from the 1130 towards 1120-1115, and then I think we'll go again up to 1140.
But that's getting way ahead of ourselves. The most important hour probably of this year's trading is coming up at the end of this session. To the extent that the E-mini S&P and Nasdaq can sustain its gains and continue higher and hold into the close means everything as to whether or not this correction will take a breather and we have some upside to look forward to next week.
If there's a failure in the last hour, that's a treacherous situation and we could get slammed on Monday.
With regard to the QQQs, so far for the five hours or so of trading that has occurred, the Qs have held yesterday's low. They gapped up to the 35.10 area, and continued higher to test the exact high from Thursday at 35.53, so what we have right now is a rally off of the low of about 70 cents. But if we can't take out the prior rally peak, then what we have is a relatively feeble rally in the Qs that really is not signaling that 34.80 is the low for this move yet.
On the other hand, the fact that the Qs have held up so well in the afternoon session, from 35.30 to 35.50, argues there is another rally attempt coming. To the extent it can get through 35.53 would be a very positive sign. The question is upside acceleration above 35.53. The next target is 35.65-.70. That would be the next place where the Q rally would run out of gas.
If it does run out of gas, then the most critical factor would be how it responds in the final hour of trading. If the Qs can hold somewhere above 35.35, after hitting a new rally high at, say, 35.65, then I think the Qs are in pretty good shape to continue the recovery rally next week.
On the other hand, if the Qs fail to hold above some reasonable pullback level, 35.65-.35, and break below that, then I think you will see the Qs close very weak and extend the weakness into next week, towards our next target on the downside, which is 34.60-.40.