By Mike Paulenoff, MPTrader.com
After a very listless start to the trading session that really ignored earnings and economic data early in the session, toward mid-session the Philly Fed came out with an economic figure for its regional growth of 28 versus 14 in the prior period. This was totally out of the realm of expectations for most all economists, who were looking for around 16 as the headline figure.
With the headline figure being 28, the indices took off, and initially the upside move off of the Philly Fed figures did not extend and was not sustained. After a brief pause, in the last 30 minutes or so between noon and 1 o'clock Eastern the indices have taken off and retraced in excess of 60% of the entire down-move from Wednesday morning's high to the post-market lows yesterday afternoon after the IBM earnings came out.
What we're looking for now is that with such a big retracemment, you're pretty much nearing a full-fledged retest of Wedneday's highs. Those highs in the December S&P E-Mini would be 1055.75, and in the Nasdaq E-Mini 1444 ,. As we speak we're at around 1430 in the Nasdaq E-Mini, and we're at about 1051-52 in the S&P, just 3-4 points off the highs.
So it'll be interesting to see if the market has the muscle and the drive to move back up and retest those highs, or if this is indeed a recovery rally, albeit a vicious one on the upside, that will set up another corrective down-leg. It is the latter scenario we expect at this point. However, if the indices move to new highs above Wednesday's peaks, our immediate scenario for another down-leg would be put on hold to see where the current up-move finally ends. Somewhere around 1055-60 in the E-Mini S&P would be the target zone for a marginal new high and a failure of the index to extend to that level.
For traders of the QQQs, the Qs are trading similar to the Nasdaq and as such have recovered quite a bit of mileage from the down-move from yesterday's high at 35.87 into yesterday afternoon's IBM earnings low at around 34.86. So that $1 decline has basically been retraced just about halfway if not slightly above. The key level for the QQQs is 35.60. If you get a sustained move above that, then you should expect a full-fledge retest of yesterday's high at 35.87.
A failure to get above 35.50-.60, followed by a decline below 35.20, would tell me this bounce we're having is really just a recovery in an incomplete correction to the downside, and I would be looking for 34 even by the end of the week.