The markets were poised to move higher next week until they were hit by an unexpected headline.

At this point, I am not sure that a terrorist attack, especially in the UK, is unexpected. However, the headlines have depressed the S&P futures and could be a negative influence on the market on Monday.

The major big cap indexes rallied to new highs last week and they are probably going to be susceptible to some profit taking regardless of the headlines. This just gives traders an excuse to sell. However, the breadth of the breakout and the gains in the S&P suggest any dip will be bought.

The S&P broke over resistance at 2,420 for a 19-point surge over two days. This is clearly in blue-sky territory but analysts are calling for tops at nearly every 5-point increment including 2,445, 2,450, 2,465 and 2,475. Nobody really knows where the S&P will peak or when. Everyone is grasping at technical straws when asked to make a prediction. The 2,450 level has the most votes.

When an index or stock breaks out of a long-term base as the S&P did last week, there can be a prolonged move. So far we have only seen two days. It is too early to be making predictions but it is time to be following the trend.

Any further gains will cause additional short covering and price chasing by those investors who believe the sky is the only limit. Yes, there are some of those in the market.

I believe we will continue rising but not in a straight line. There will be ebbs and flows but the long-term direction should be up. Earnings were strong and expected to remain strong. Interest rates are too low to provide an alternative in treasuries and business optimism is still strong despite the battles in Washington. As long as those factors remain in play, we have a greater chance of moving higher than lower.

Just remember, markets do not need an excuse to move sharply lower. If enough people suddenly decide to take profits in the same week, it can create a wave of selling that triggers waves of sell stops. We have seen it many times in the past. I do not anticipate that in the near future but the events you are not expecting tend to be the most dangerous.

The Dow closed at a new high for the last two days but the breakout was not as convincing as the S&P. This is actually good for the market because the Dow is not overbought. Had we sprinted 200 points on Friday the expectation for profit taking would be a lot greater. The Dow had a solid day on an event risk Friday. That is bullish. Support is well below at 21,000.

The Nasdaq indexes have gone well into overbought territory and well above prior resistance. There are no obvious resistance levels so that makes round numbers more important. The 6,500 level on the Nasdaq Composite is likely to be a challenge and the 6,000 level on the Nasdaq 100.

The Russell 200 0came back to life but failed to reach a new high. The index posted a 4% rebound over three days but closed 10 points off its Friday high. I am not convinced the Russell is going to join the new high party, especially with the first rebalance deletions list due out next Friday. That will prompt an entirely new round of selling.

There are very few earnings reporters next week and we are not likely to get much headline help from this list.

The economic calendar is weighted towards Monday with the three main reports for the week. The UK election is the wild card on Thursday and now even more so after the new terror attack.

This "should" be a low volatility week because of the lack of headlines. However, there are no guarantees. The S&P futures are down -4 points and the low of the session but that could change by morning. The Ariana Grande benefit concert ended without any problems and that is one less thing the UK has to worry about overnight.

Even though the Fed meeting is not until next week we should see the focus start to shift to their decisions. They are assumed to be planning a rate hike but the real question is whether they will announce a cut to their balance sheet. That is still a market unknown.

The trend is your friend until it ends so the outlook is for continued gains, just not in a straight line. Plan your entry points accordingly.

Enter passively, exit aggressively!

Jim Brown

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