July opened strong but today there was no follow through to Tuesday's gains. But at least the bulls stay in charge with the sideways consolidation.

Wednesday's Market Stats

Futures ran flat last night and other than a quick blip up and down following the ADP report at 8:30 this morning there wasn't much for traders to do today. It was a race between the grass growing in my yard and the stock market and my grass won by a mile.

The ADP report showed stronger-than-expected employment gains and that had the market confused. It's a good sign for the economy but it means the Fed will stay on track to remove stimulus. Because Friday is a holiday we'll get the nonfarm Payrolls (NFP) tomorrow and the market seemed to be on hold until we get through that report. Hopefully the market will move after that. With the ADP report showing +281K jobs added in June, vs. +200K that was expected and an improvement over the +179K for May, most economists are now expecting the NFP to show +230K, up from +217K for May.

Factory Orders for May was released at 10:00 this morning and showed a -0.5% decline, which was slightly worse than the expected -0.4%. This was a drop from +0.8% in April and most write it off as old data and the fact that the weather ate our orders. The market didn't even flinch on the report. In fact the market didn't even flinch all day.

The first chart to show tonight is one which tells us all there is to say about how today went. The ES 10-min all-hours chart below shows the rally yesterday followed by the sideways consolidation in the after-hours session followed by the sideways consolidation in the regular-hours session today. We often see a quick move in the morning followed by consolidation for the rest of the day, what I call one-and-done kind of days. So today's mind-numbing flat session has me wondering if yesterday, being the 1st of the month, was a one-and-done day for the month. That's of course said tongue-in-cheek, or is it?

S&P 500 emini futures contract, 10-min all-hours chart

Last week at this time we had a nice setup for the bears but once again they were thwarted with another rally that negated the bearish wave count and left us with just another 3-wave pullback from the June 24th high. That then gave the bulls a bullish wave count that calls for the market to stair-step higher, possibly into next week or perhaps even into opex week (July 14-18). The pattern is short-term bullish and the bears will need to wait until there's better proof that a top of significance is in place. I'm therefore now looking for the next potential top (in time and price).

In last Wednesday's wrap I had shown a weekly chart for SPX with a series of Fibonacci time spans that pointed to this week as a potential turn week. I consider these timing signals to be +/- a week and therefore last week through next week would be considered a turn window. The way yesterday rallied I thought we might see a rally up to an important price level this week and that's still a possibility, especially if the market reacts happy to tomorrow morning's NFP. A price target zone is 1990-1998, which is 12-20 points above Tuesday's high and considering Tuesday's rally was 18 points to the high of the day it's not unreasonable to think it could happen, especially in a blow-off move on news.

The upper target, 1998, comes from the Gann Square of Nine chart. I've copied the middle section of the chart, showing from top to bottom, so that you can see the relationship of 1998 top previous important highs and lows for SPX. The October 2002 low, April 2012 high and October 2007 high are on the red vector at the 11:00 position. At the opposite end, 180 degrees from those important level, is 1998. The next important level on this chart is 2007, which "vibrates" off the March 2009 low at 666. Wouldn't it be interesting if the top following the 2007 high is at 2007.

Gann Square of Nine chart

On the weekly chart below I've added a price projection based on the relationship between the waves in the move up from October 2011, which is a 3-wave A-B-C move. The c-wave would be 162% of the a-wave at 1990. In addition to this projection we've got the top of the parallel up-channel from 2011, which price has been cycling around since June 6th, and the top of a parallel up-channel for the final leg of the rally from April 11th, the top of which is currently near 1993. The market continues to push higher in the face of many reasons why it shouldn't and I see additional upside but the leg up from April continues to fit well as the final leg of the rally and therefore bulls need to be careful about the high level of complacency since a turn, when it comes, could happen fast and furious.

S&P 500, SPX, Weekly chart

The wave count for the rally from April looks to have started with 3 sets of 1st and 2nd waves and that means it needs to stair-step higher following the pullback to June 12th. That's what I'm depicting on the daily chart below and the pattern supports the idea that SPX could rally to about 2015 by the end of opex week (July 14-18). The first sign of trouble for the bulls would be a decline below the June 26th low near 1944 but for now the pattern remains short-term bullish.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 1960
- bearish below 1944

The same stair-step pattern higher also looks to be true for the leg up from June 26th, as depicted on the 60-min chart below. This pattern calls for a larger pullback next week and then a final rally into opex week.

S&P 500, SPX, 60-min chart

The choppy pattern on the DOW's daily chart leaves few clues as to what's next so keeping an eye on the bigger picture, with the weekly chart below, it shows price is getting pinched. The trend line along the highs from May 2011 - May 2013 is still controlling the highs for the DOW. Other than the brief poke above the line in December 2013 it has been holding the DOW down since then and is currently near 16986 (today's high). There's higher potential to a trend line along the highs from May 2011 across the December 2013 high, currently near 17300, so that's upside potential if the DOW can break above 17K and hold above. Support is at its uptrend line from February-April, nearing 16850, and its 2000-2007 trend line, now at 16745. A drop below 16700 would be a bearish heads up and below 16340 would tell us a long-term top is in place.

Dow Industrials, INDU, Weekly chart

Key Levels for DOW:
- bullish above 17,000
- bearish below 16,340

I get two different impressions about NDX with its trend lines when using the log scale vs. arithmetic scale. My preference is to use log scale on trend lines when we're dealing with months/years but I've seen traders react around them both ways and therefore it's important to check your charts to see how the trend lines change. The daily chart below is with the log scale and it shows upside potential to 3937 where the trend line along the highs from April 24 - June 9 crosses the trend line along the highs from April 2012 - March 2014. That's also where a 162% extension of its previous decline (March-April) is located and that makes it an important level to watch if reached.

Nasdaq-100, NDX, Daily chart, log scale

Key Levels for NDX:
- bullish above 3870
- bearish below 3791

But NDX could be in trouble here -- the trend line along the highs from April 2012 - March 2014 is now being tagged, near 3900. The trend line along the highs from April 24 - June 9 was hit yesterday and is currently near 3914. There's a short-term price projection for the leg up from June 24th at 3929 so there's a lot going on in the 3900-3937 area to suggest NDX could top out in this zone.

Nasdaq-100, NDX, Daily chart, arithmetic scale

The RUT had been relatively strong the past few days but was the weak sister today. Following yesterday's test of its March 4th high at 1212.82 (exceeding it by less than a point), today's pullback is leaving the potential for a double top to form. Typically double tops separated by a few months can be strong reversal setups and that's what we're facing with the RUT until the bulls can power it above 1213 and keep it above. With a 5-wave count for the rally from April it can be considered complete at any time, making the double-top setup all that more important. Today's candlestick pattern is a bearish harami (inside day) which is a reversal pattern at the end of a run up against resistance it's worth respecting.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 1213
- bearish below 1165

The banks have remained relatively weak since topping in March with the broader market. It has not yet been able to top its high on March 21st at 73.90 as yesterday's high at 72.24 is still 2.3% below its peak. The bounce off the May 15th low is close to a back test of the bottom of its up-channel from June 2012, which is currently near the price projection at 73.64 for two equal legs up for its 3-wave bounce off the 2009 low. The bearish divergence, as can be seen on its weekly chart below, does not bode well for the bulls.

KBW Bank index, BKX, Weekly chart

The TRAN looks like it could press a little higher to an intersection of trend lines near 8350, only slightly higher than yesterday's high at 8295. Its trend line along the highs from April 2010 - July 2011 crosses the trend line along the highs from May 2013 - January 2014 this week and it fits well for the completion of the 5th wave in the move up from November 2012, which in turn should be the completion of the 3-wave move up from 2009.

Transportation Index, TRAN, Weekly chart

The U.S. dollar has pulled back from June 5th high but if it's to remain bullish it should reverse here and start back up. It has dropped down to its uptrend line from May-August 2011 as well as its broken downtrend line from January 19th (grey line on the weekly chart below). The uptrend line and a back test of the top of its previous descending wedge should act as support and launch another rally leg into at least the fall if not the end of the year.

U.S. Dollar contract, DX, Weekly chart

Gold's rally off its June 3rd low is looking bullish. It's not difficult seeing a 5-wave rally and while that calls for a pullback soon (perhaps after one more minor new high to about 1335), the pullback should then lead to higher highs this summer (depicted in green on its daily chart below). The rally from June 3rd could be part of a larger corrective pattern before heading lower so it will be the shape of the next pullback/decline (impulsive or corrective) that will provide clues for what will be next for gold. But in the short term this is not a good place to buy it.

Gold continuous contract, GC, Daily chart

On June 12th oil popped up out of its trading range that it had been in since February, by rallying above 105 and it needed to hold above 105 to stay bullish. But today it closed below 105 and that leaves a failed breakout attempt. It's on a sell signal because of that but there's still support at its uptrend line from January, currently near 103.10 and just below its 50-dma at 103.30. Its sell signal would be negated with another close above 105 so it's too early to tell which way oil will head from here. As depicted on its weekly chart below, I'm looking for higher prices, up to its downtrend line from May 2011 - August 2013, currently near 111. But a drop below 103 would be a pretty solid confirmation of the sell signal.

Oil continuous contract, CL, Weekly chart

Thursday morning will be busy with economic reports because all of Friday's will be reported as well. The big report is the Nonfarm Payrolls report before the bell. Once we get through that report maybe we'll see a little market movement than we saw today. It shouldn't be hard to accomplish that.

Economic reports and Summary

I've got two different short-term perspectives for the market -- the techs look like they could press higher, perhaps even into opex week. The techs and small caps could reverse here and now. What it means is the short-term picture is a little muddy right now but dangerous for complacent bulls. It's also dangerous for eager-beaver bears but at least they've been keeping stops tight. My concern for many bulls is that not only are stops not tight, many don't even bother with them. "The market always comes back; we don't need no stinkin' stops!" The market has conditioned most traders to firmly believe this and that's when the market slaps them silly and reminds them why stops are important.

Most bears are from Missouri now (the Show Me state) and they're waiting for proof of a top before stepping back in. It's another sign that a top is likely here or very close since it could start down in a hurry without the bears on board, in which case they'll end of chasing it lower as some bulls start to bail as well. It's what drives the market back down so quickly. Bears need to stay aware of the additional upside potential but be ready to short bounces if we start to see some impulsive action to the downside. Bulls, as hard as it might be, need to pull stops up tight and take as much profit off the table as you can. It might be tough but if shaken out of a long position and it reverses back up, I continue to believe upside potential is dwarfed by downside risk and I would trade accordingly.

Good luck and I'll be back with you on July 23rd as I'll be taking some time off. Feel free to email me questions in the meantime.

Keene H. Little, CMT

In the end everything works out and if it doesn't work out, it is not the end. Old Indian Saying