The Dow rebounded from an 8-week low to barely cling to prior support at 17,500. I would be very surprised to see the index move significantly higher and even if it did I would expect it to roll over and make a new low.

For the prior two weeks I had been saying "the Fed will be in play for June." After the release of the FOMC minutes on Wednesday, we now know for sure that the June meeting is in play. While I personally do not expect a June rate hike, I do expect one in July. They will likely say in the June announcement that assuming conditions do not change we will hike in July. I believe they would hike in June if it were not for the Brexit vote on June 23rd, just one week after the FOMC meeting. They cannot afford to hike rates and then have the UK vote to leave the Eurozone. That could be a double calamity. Surveys show that 55% of voters want to remain in the Eurozone but there is a very vocal group lobbying for the exit so anything is possible.

If the Dow breaks down as expected the 17,400 level is initial support followed by 17,135 then 16,500. Quite a few analysts are expecting that retest of 16,500 or lower.

The S&P-500 is defending that support at 2,040 like it was a goal line stand in the Super Bowl. While it has broken intraday we have not seen a close below that level. When it comes, it may be followed by some cascade selling to the 1,990 support from last August.

There is a minor qualification on the outlook for a weaker market. While the volume has been heavier on the declines the refusal to close under 2,040 suggests some big money at work. Considering the equity outflows at six-year highs somebody with deep pockets is propping up the market. Eventually a failure to decline could turn into an unexpected rally. I do not expect that but it is always a possibility.

The Nasdaq rally on Friday was due to the very strong guidance by Applied Materials. That spiked all the stocks in the semiconductor sector to start the party. Also, the approaching ASCO cancer conference from June 3rd to 7th is providing support for the biotech sector. Those two sectors caused a 57 point spike on the Nasdaq the day after the index broke below support at 4,700 intraday.

That is the level to watch. If the index closes under 4,700 the next target becomes 4,600 and then 4,300.

The economic calendar has a lot of noise for next week. The Richmond Manufacturing Survey is important but it is not a market mover. The rest of the week is filler until the GDP and Yellen's speech on Friday. The GDP is only relative if it comes in lower than 0.5% growth. Yellen's speech is important because she can either counter all the hawkish comments from the Fed heads in recent weeks or she cah agree with them or ignore them. The market wants her to be her normal dovish self.

The earnings cycle is nearly over but we still have Best Buy, Dollar Tree and Costco reporting next week to close out the retailer earnings cycle. Both Hewlett Packards will report but the market will ignore them.

Crude prices rose to a six-month high at $48 thanks to a reduction in inventories as a result of the fires in Canada and outages in multiple OPEC countries. Analysts believe there could be as much as 3 million barrels per day offline around the world. That means we are not currently in a production glut but an actual shortage. There are plenty of supplies stored up so prices should not panic. As those outages are cured the production surplus will return.

I am still looking for a significant buying opportunity in the weeks ahead. While a surprise summer rally would be nice, it would definitely be a surprise.

Jim Brown

Send Jim an email