By Mike Paulenoff, MPTrader.com
Not surprisingly, the indexes gave back a fair amount of the rally from Friday. However, neither E-mini index has broken its low from Friday. If anything, what we're calling a pullback today should hold in and around Friday's lows, and if they should turn up then we'll have a minor double-bottom situation in the E-Mini June S&P. 1103.50 is the low so far today. If the index doesn't take out 1110 on the upside, then we think it's going still lower and may get a full-fledged test of Friday's low at 1101.
In any case, somewhere in that area we're expecting it to hold -- give or take a few points, even a marginal new low -- to create the illusion at first of a double-bottom.
In order for it to confirm a double-bottom, the E-mini June S&P needs to turn up and break above 1110. That would be a confirmation. However, in the final hour of trading if it turns up, chances are it will be the preliminary indication that a double-bottom is forming.
What this means is that the rally on Friday at 1101-1120 is the first part of an upside correction. The pullback to the same level, 1101 or so, is the intervening test of the low. And now we're coming up the right side of what is a W pattern, or a double-bottom. Key resistance is 1115-18. If it gets through that then I think you'll pick up momentum and go to the 1122-25 area.
What would become even more constructive would be a rally above 1125 ,. At that point you will see the market trigger even more upside recovery into the 1132-35 area.
For now, though, we're at 1106.25, right in the middle of today's range for the most part, and nothing really has been established. Although we do think we're getting very close to a secondary low.
Over in the QQQs, the Qs did what we suspected they might do this morning in our opening commentary and that is pull back and test very important support between 35.18 and 35.12. If that's broken the Qs would fill the gap left behind on last Friday's up-gap opening, between 35.05 and 34.86.
In the early part of the session the Qs broke 35.12, and thus far we have a low of 34.90, just 4 cents from filling the entire gap. For all intents and purposes the gap has been filled. The Qs may roll over again and fill that gap completely at 34.86 and, in fact, may even retest Thursday's low at 34.80.
In any case, the same type of analysis applies, as it applies to the E-mini June S&P, that we do think this pullback, as deep as it is, perhaps even making marginal new lows, will not trigger downside acceleration but in fact will represent a secondary low within a minor bottom ahead of a countertrend rally that takes you back to test 35.60 and, if that's taken out, 36.