The Nasdaq rebound failed but support held. This week we get a second chance at that rebound.

The big cap tech stocks rose early in the week then rolled over to retest the lows. After a couple days of choppy trading, they could be poised to go in either direction. However, they had their chance to punch through support twice and could not get it done. This suggests the selling pressure has eased. If we could put together a string of positive closes on the big caps, it would do wonders for market sentiment. The gains would not have to be large, just positive.

The Nasdaq Composite Index has held at 6,100 twice now with a low of 6,110 and another at 6,108. This is the line in the sand for the market any material close below 6,100 would be a strong sell signal with 6,000 the next support level. That was roughly the support from the mid May decline.

The post crash high close was 6,220 and that becomes the level to watch on the upside. Any movement outside either of those levels should trigger market direction for the rest of the week.

The Nasdaq 100 rebounded from uptrend support then tested it again on Thursday and the rebound was lackluster. This is our weakest link heading into next week.

The Dow managed to squeeze out another new high but only by 10 points. This is the strongest index and the components have been rotating for the leadership position. With Apple down 14 points from its pre crash $156 high and that is the equivalent of about 100 Dow points but the index is still making new highs.

The Russell 2000 made a new high close on Tuesday then declined for 3 consecutive days. Support at 1,400 was tested on Friday and held. I do not have big hopes for the Russell this week because the rebalance is on Friday at the close. There will be portfolio managers selling early so the last three days of the week will be under pressure.

The economic calendar is dominated by Fed speeches and a couple home sales reports. The economic reports are not as important for market direction as a couple of earnings reports. Adobe and FedEx report on Tuesday and Oracle on Wednesday. Blackberry and Finish Line finish off the week on Friday.

This is going to be a critical week for market direction. There is very little in expected headlines so the market will have to pick its own direction. Monday should be neutral as the quadruple option expiration is cleaned up. Expired options will be replaced and exercised options will result in decisions on leftover stock positions. Post expiration Mondays are rarely directional.

Despite the Nasdaq weakness the market is still trading at its recent highs. All the indexes could be back in new high mode very quickly. OR, some random headline could be blamed for the resumption of the Nasdaq decline. We simply will not know and the lack of material headlines means investors will be looking for a reason to trade. Unless a market direction appears, I would hold on to some cash in case we get another buying opportunity.

S&P futures are up +5 despite the terror attack in London.

Enter passively, exit aggressively!

Jim Brown

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