No bounce into the close but the decline is building a small descending wedge which could be setting us up for another bounce tomorrow. Either that or we crash.

If we do get a bounce it will see the same result as today if the bearish wave count is correct, which points hard down. Because of today's bounce I don't believe the descending wedge idea fits for the RUT (the ones shown on the SPX and RUT daily charts last night). It could still fit for SPX (if we get a drop tomorrow, consolidation and a final drop that finds support near 1020) but because it doesn't fit the RUT I'm leaning towards it not being the correct pattern. And if it's not the correct pattern and we do start down in earnest then the probability of a crash leg becomes elevated. Are you protected in the event it happens (which is more important than are you prepared to make money from it)?

This afternoon's drop has made my week! The conditions were ripe. Thanks for everyone's input in here. I learn new things everyday which is a good thing as a trader.

Following this little bounce we're getting (I'm looking at a 2-min chart) if we now get a new low (doing it as I type) that will give us a 5-wave move down today (with a funky looking 1st wave). That tells us the trend has reversed back down. Look for a bounce into the close (if we get it) as another shorting opportunity.

Both the NDX and the RUT tagged their broken 200-dma's today and then sold off. That's clearly not a bullish statement. Obviously if both were able to rally above today's highs (we've still only got a pullback and nothing impulsive to the downside yet) we'd probably see another leg up equal to the one off yesterday's lows.

There goes a reversal off of the pivot on ES's again.

The small caps are trying to hang tough today. They are showing remarkable resilience, however if the rest of the market breaks lower, they too shall follow.

Poor BP, down another -15%.

Nice setup, eh? I couldn't help myself and shorted it when SPX tagged 1076.44, where I had pointed out this morning that the 5th wave in the move up from yesterday afternoon was equal to the 1st wave.

Keene, didn't you call 1,077 as the place to initiate short positions earlier? That was a beauty! You were 75 cents off, LOL. Tech analysis in this market has worked well. Today the Pivots and wave patterns worked perfectly.

If you'd like to manage your stop a little tighter on a new short play today, any move back above the little bump high near 2:30 PM (SPX 1071.14) would have me thinking the pattern for this afternoon's pullback is just a corrective pullback and to expect another leg up. So hopefully a stop near 1072 should have most of you at least at a breakeven stop there. Then let it run as a free trade (you can't get hurt).

This is not good for the bulls. And I wouldn't count on the bounce lasting long.

After forming what was looking like a bull flag, price dropped out the bottom of it. A failed pattern usually fails hard and we got that spike down once it did. SPX 1065 should be resistance now if it bounces back up. A recovery back above 1065 could leave a head-fake break to the downside.

1060ish may also set-up an inverse head and shoulders so it is a logical point for bounce, like what is happening now. But if the selling intesifies it could go right through it. 15 minute ES chart: Link

Would the last bull out please lock the door and turn off the lights.

The gap fill would be ES 1060ish which is also near the 50-period SMA on a 15 minute chart. That could be a stall/bounce point.

I'm not seeing anything indicating this is going to stop. But be prepared for anything.

We need to get the long stops taken out and we may get a quick spike lower. Hopefully they are there.

R1 has been a key pivot today.

I'm back and I see the market has pulled back but it's definitely questionable as to whether it's a bull flag kind of pullback or the start of the next leg down. It looks like a decline more from a lack of interest in buying than outright selling. If you shorted the high this morning as I did, stops can now be placed at a marginal new daily high. Keep risk nice and tight for now.

Something is holding this up and I'm not sure why or what but NYSE breadth is making new highs now.

The NYSE breadth needs to get moving lower if we are going to drop from here.

The U.S. debt will top $13.6 trillion this year and climb to an estimated $19.6 trillion by 2015, according to a Treasury Department report to Congress.

The report that was sent to lawmakers Friday night with no fanfare said the ratio of debt to the gross domestic product would rise to 102 percent by 2015 from 93 percent this year.

We are on the edge of a cliff here. Its do or die time for the bulls. The internals are deteriorating.

Intraday Market Update

S&P 500 futures were once again volatile in the overnight session trading in a 17 point range between 1,052 and 1,069. The markets seemed to get a boost on data from China as a senior government official stated that China's May exports would be up +50% over last year's levels, compared to estimates of about +32%. This data strengthens the bulls argument that the sell off over the last several days has been overdone. The S&P 500 gapped higher by about +7 points and has tacked on a total of +13 points since yesterday's close to 1,075. There is formidable resistance in the 1,078 to 1,082 area which is the line in the sand for bears to defend. All of the indexes are up +1% or higher in early afternoon trading but are off morning highs.

The impressive China data released overnight has drawn immediate political responses from US Senators Schumer (D-NY) and Stabenow (D-MI). Schumer commented that the Treasury's failure to cite China as a currency manipulator was disappointing and that the Senate would vote to censure China for its currency policies in two weeks. Stabenow stated that there would be enough votes in Senate to bring a China currency bill to the floor for ultimate approval.

Mixed messages are pouring out of our leaders at the Federal Reserve, including the Chairman, on the timing of interest rates increases and the state of our economy. It seems everyday we hear something different. Ben Bernanke just stated yesterday in an interview with ABC news that he does not expect a double dip recession to hit the US economy. However when testifying before the House Budget Committee Bernanke warned that significant restraints remain on the pace of the US recovery and also noted that a "double dip can never be ruled out," adding that the economic recovery is modest and not as fast as desired, but we averted economic collapse. This should make for an interesting FOMC meeting the week of June 21st. Unfortunately we won't get the minutes until a couple of weeks later.

In economic news, the MBA Purchase Applications index continued its descent after the government stimulus ended in on April 30th. Purchase applications were down -5.7% last week which is a -35% decline from just four weeks ago. Refinance applications also eased back last week by -14.3%.The decrease in refinance activity warns that many homeowners who have yet to refinance may not be able to so if they have negative equity in their homes or have uncertain job situations or damaged credit. Mortgage rates were little changed with 30 year rates averaging 4.81%. Higher interest rates in the long term will also continue to lessen demand in the housing market as homeowners who have refinanced at 5% will be less willing to sell their house and buy a new one at an 8% or 9% rate, for example.

Wholesale inventories continue to build rising +0.4% in April. This was a solid increase on top of a +0.7% build in March, which was revised up from +0.4%, and a +0.6% build in February. But the build in inventories continues to lag sales which rose +0.7% in April to pull the wholesale stock to sales ratio down -0.1% to a record low 1.13.

In equities, Caterpillar (CAT) raised its dividend 5% to $0.44 from $0.42 and shares are up +2.6%. Texas Instruments narrowed its Q2 guidance and stated that orders look strong and are still rising. They also noted that the company has not seen any change in European demand. Shares of TXI are up +1.5%. Applied Materials CEO said the semiconductor market is recovering thanks to demand for tablet computers and warned there may not be enough capacity in the industry to meet this wave of demand. Shares of AMAT are up about +1%. Heavy truck manufacturer Navistar reported strong earnings and reaffirmed its 2010 guidance. Executives said that their engine business has started to recover and margins are improving on higher order levels. Shares of NAV are about breakeven. In a merger deal electronic medical records firm Eclipsys is merging with Allscripts in an all-stock deal worth around $1.1B. ECLP is up +4% while MDRX is off by about -8%.

Commodities/Currencies:

Commodities are mixed with crude oil and copper surging while the precious metals and natural gas are moving lower.

Link

International Markets:

The Asia-Pacific markets were mixed with China (+2.78%) and Hong Kong (+0.69%) gaining and Japan (-1.04%) declining. All major European markets were higher including Spain (+2.29%), Germany (+1.98%), France (+1.98%), and London (+1.15%).

Core Sector List:

Overall reading: 14 sectors advancing, 2 sectors declining.

Strongest Sectors: Oil Services, Retail, Semiconductors

Weakest Sectors: Gold Miners, Oil

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S&P 500 - Daily and 30-minute Intraday Charts:
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Dow Jones - Daily and 30-minute Intraday Charts:
Link

NASDAQ - Daily and 30-minute Intraday Charts:
Link

Russell 2000 - Daily and 30-minute Intraday Charts:
Link

The bulls are going to have to get with the program pretty soon or lose their opportunity. If SPX drops back below 1070 it could be lights out.

This consolidation near the recent high looks like a bull flag and a retest the day's high or move even higher is possible. Until it begins to make an impulsive move lower the bears are not out of the woods.

The SPX has now retraced 50% of the sell off from the June 3rd high. If it gets much past the 61.8% retracement level then you'd have to think the June 3rd highs will be retested. I would love to say I know what will happen but we all know how foolish that would be so I'll just take one day at a time. I took a long position just before the close last night but I bailed earlier today because of the uncertainty we saw. Daily SPX

I've got to step away for about 2 hours and should be back by 2:00 PM to see how the day finishes.

Updating last night's SPX 60-min chart, this is the bearish setup--the bearish wave count calls the correction of the leg down from last Thursday as another 2nd wave bounce which will lead to very strong selling pressure (the crash leg). That's why this is where you want to try a short play (it's a MOAP) and then we'll just have to wait to see if it starts working. SPX 60-min chart

If it starts back down impulsively then you'll want to add to your position on each bounce on the way down. A stop just above the downtrend line near 1086 is the safest place for it right now (so don't trade big yet).

I would say TD is close enoungh to our short entry trigger of $67.80, it traaded to $67.62. You can get July $65 PUTS for about $1.90 right now. I'm looking for a $3 to $5 move lower from here. TD Daily:Link

A few large cap techs just aren't getting it doen. AAPL & QCOM are about breakeven. We have AAPL short and QCOM long in the model protfolio.

If you are a bear, this is either the time for a great entry on a short play or your signal to start getting out of existing short plays. We have achieved our objective at 1077. If, however, it gets above 1080 it will have me thinking that we could go much higher. I'll be shutting down short plays above that level.

This is where the rally should stop if the bears are going to take over. Much higher and we'd be looking at least at SPX 1081.41 for a 62% retracement of the decline from last Thursday. The next level of resistance would be the downtrend line from May 13th, near 1086.

I wish our government would take more of stance like this.

German Economy Minister rejects Opel's request for aid - Says it was a difficult decision, but feels GM has ample means to restructure Opel. Notes GM is doing better and has 10B euros in financial reserves it can use for restructuring Opel.

Caterpillar Inc Raises dividend 5% to $0.44 from $0.42

For any readers in our PXD trade we have hit our first 3 targets and are up almost +7% in the trade. I would be tightening stops. Our final traget is $66.80 which is about 50 cents away. This trade will be closed today in the newsletter. PXD daily: Link

1,070.75 also corresponds with the lows on 6/1 and 6/2 and should act as support on a pullback as we're breaking through this now. There isn't much more resistance until R2 which is 1,076.50 which seems like a no brainer at this point. A pullback first would be nice though.

We're getting the 5th wave up for the rally from yesterday afternoon and just a little bit further will make for a good short entry. If SPX fails at or below 1077 and only chops its way back down then we'd have a good clue that the market intends to go higher and we can lower our stops accordingly. But at least for now look at this morning's rally as a good shorting opportunity.

Ok now the VIX is making its move and its bullish.

Monday's high on the ES's was 1,070.75.

Our short ARO position is not going in our favor today. It just filled the gap from last Thursday and seems to be stalling there. The 50% retracement from last Thursday's high to yesterday's low is $28.93. 61.8% is $29.32. If it goes much higher than these numbers we will get stopped out. Our stop is above the 50-day SMA. ARO daily: Link

Well my goodness it has been anything but an easy day to trade. I do see the VIX heading to daily lows so it may just decide to give up the fight and succumb to the bulls.

Yesterday helicopter Ben said that there will not be a double dip recesion but today in a Q&A session he says it can not ever be ruled out. Geez, there are so many mixed messages from the Fed its no wonder why the markets are confused.

Fed's Bernanke: Cannot ever entirely rule out a "double dip" recession, but moderate growth expected; Economic recovery "modest," not as fast as desired, but we averted economic collapse.

I would add to his quote and say "for the time being."

Crude inventories numbers were mixed. Crude was bullish but gas and distillates were bearish. Crude is getting hit a little but not too bad so far.

DOE CRUDE: -1.83M V -1ME; GASOLINE: 0K V -250KE; DISTILLATE: +1.84M V +500KE; UTILIZATION: 89.1% V 87.5%E

PBR has broken out of an ascending triangle on its hourly and daily chart. This is a long play in the newsletter from last night. Our entry was a break above resistance at $37.52. The stock gapped higher and pulled right back to our entry point and looks good so far. I'm looking for a move up to the $39 area. There should be good support in the $37.25 to $37.50 area which has been resistance the past week. PBR hourly: Link

Of courese Crude inventories are due out in 3 minutes so this could change things in a hurry.

So far the pullback from this morning's high looks like a choppy correction and suggests the market will push higher. The pattern for the move up from the low near 2:00 PM yesterday looks like it could use another new high to complete a 5-wave move up (easily seen on a 5-min chart). The 5th wave of that move would equal the 1st at SPX 1076.44 if it motors on up to there right now. It's also very close to the potentially important 1077 level and an area I'd look to try a short play again if stopped out of this morning's.

The AD volume just keeps getting stronger and stronger and I'm wondering it will be able to overcome the bearish VIX. We'll see but it certainly looks like its going to.

April Wholesale Inventories were $397.8B up 0.4% from the revised March level but down 3.2% from a year ago. The March preliminary estimate was revised upward to $1.3B or 0.3%. Median forecast was for 0.6%.

The April inventories/sales ratio was 1.13. April 2009 it was 1.36.

There goes Crude, up over $2.00. Daily Crude

VIX to new daily highs so I'd be careful out there if long.

The AD volume is certainly bullish but the VIX is not and when these two are in disagreement you want to sit on the sidelines or you'll be taken out by the flying shrapnel. Internals

If this morning's bounce is immediately followed by a drop below yesterday's low then that would open up the door to a move down to the 1020 area. That makes it worthwhile to try a short play here and then just be ready to pull it if the market starts back up again.

If we're to get a correction of the leg down from last Thursday it should ideally take the rest of today and retrace close to 50% of the decline. That would be near SPX 1074 and a pullback this morning followed by another leg up this afternoon would do a good job in completing an a-b-c bounce off yesterday's low. If that were to set up this afternoon I think it would be a very good opportunity to try the short side again.

I'm not giving up on the bulls yet but they failed their first test at 1069.

SPX is reaching up to tag its first resistance level near 1069. Now we'll see how much of the opening enthusiasm holds.

AD line opens at +1550

The Asian markets closed mixed while Europe is trading positive, which helped the effort to lift the U.S. futures. ES was lifted 14 points off its low of 1053.50 near 5:40 AM to a high of 1067.50 just past 8:30 AM and futures appear to be holding their pre-market highs, and may push higher into the open. Support held yesterday (SPX 1040) so that could embolden a few bulls to step in today. The first test will be to see if they can power through SPX 1069 and if they can then I think there's a good chance we'll see SPX reach its next resistance level of 1074-1077.

Today will be a day of watching carefully to see what might set up. I want to see if the bulls can carry this for a bit, considering how oversold the market is, or if instead we start seeing some impulsive moves back to the downside (in which case I'll be looking to get short on the succeeding bounce). I'm going to be on the cautious side today because of the potential for a bigger bounce but wanting to see some evidence that the bulls can do it.

I was of the thought if the June 7th high was broken yesterday then the chances Crude would take another run at resistance increased substantially. I should have put my money where my mouth was. LOL Daily Crude

This selloff in Gold was to be expected since the double top was pretty much telling us it would. Yesterday I commented about the ominous looking candle forming at the double top and the MACD's potential bearish divergence. Goldbugs control this chart until the May 21st low is broken or a lower high is formed and confirmed. Daily Gold

The overnight session is being controlled by the bulls and we'll probably have a gap up. Notice the S&P (ES) and DOW (YM) futures are trading above their respective previous day highs yet the NDX (NQ) and Russell 2000 (TF) futures are not. Exact same patterns but the latter two closed in mid-point in their daily range and the former two closed much closer to the top. Overnight Session

The "lifters" are back. ES spurted higher last night at 2:00 AM. That rally lasted for about an hour and a half, before plunging back down to where it started. About 5:30 AM the buyers returned again and spiked the futures even higher. Therefore, we are looking at about a 12 point range overnight.

Gold has not done so well. It is currently down almost $11. The dollar is higher. SPX could open close to Keene's target price of 1069, which is 38% of the decline from June 3rd. 1077 is at 50%. Buying a few puts here would be recommended.

Wednesday's pivot table

We've got a slightly different perspective on the market depending on whether I look at SPX or the RUT. Both sport the potential descending wedge idea I discussed last night but the RUT is currently closer to the bottom of its wedge. One more new low for the RUT to hit the bottom of its wedge, near 600, would then give us an opportunity to see if support will hold and start a bounce from there. If we do get a bounce then we'd have to look for some clues as to how large a bounce we might get. I show two possibilities: one, a bounce into the end of the week before dropping hard down (dark red on the RUT's daily chart below); or two, a larger multi-week bounce into July (pink). RUT daily chart

If we get the new low on Wednesday and it finds support around 600 I first want to see if bullish divergences support the idea for a bounce. If there are no significant bullish divergences then it would support the idea for just a crash lower. The 60-min chart zooms in on the move down from Thursday to show what might be playing out. If we get a relatively minor new low around 600 that holds, we could then get a correction of the leg down from Thursday, so perhaps up to about 632 (a little less than 50% retracement and back for a retest of its broken 200-dma, which can be seen on the daily chart). From there the market would be perched on the edge of the cliff again (another MOAP setup). The risk to bears is the larger bounce into July and we won't know which is playing out until we get the first setup that then fails. Certainly breaking the downtrend line from the May 13th high would tell us the bigger bounce is the one. RUT 60-min chart

The SPX would have to fall further to reach the bottom of its descending wedge, which is currently near 1021. A 40-point drop in SPX would surely have the RUT far below 600 and that may actually help us determine which pattern is going to play out. If the RUT drops hard through 600 then I don't think the descending wedges (for a leading diagonal 1st wave down from April) are the right patterns. If the RUT finds support near 600 and SPX only makes a minor new low below 1040 (just enough to grab some stops) then we'd be back to wondering what kind of bounce will follow. If SPX smokes to the downside through 1020, which would have the RUT well below 600, we'd be looking at a potential crash in the making. SPX daily chart

It's also possible Tuesday's low was the completion of the leg down from last Thursday and the bounce into the close is part of a correction to that leg down. I show a bounce back up to about 1069, the June 1st low and where the June 7th bounce ran into trouble, and then rolling over into the hard-down portion of the decline. Based on this pattern we will want to watch for resistance to hold near 1069 and then short it. It's another MOAP setup there. There is the risk that the market will continue higher so manage your risk accordingly. This bounce followed by a continuation lower would likely target the 1010-1020 area at a minimum and potentially much lower if the descending wedges are not the correct pattern playing out. SPX 60-min chart

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