The Third Quarter Begins

Today is the beginning of a new month and a new quarter. Following the 6 consecutive quarterly declines, S&P500 finally posted a strong rebound - from 794 to 920 or up 16%. Whether the rebound will continue is an open question but most likely it will stall and consolidate around 800-1,000 range mainly because the US economy is yet to fire on all cyclinders. Following 2001-02 bear-market S&P500 consolidated for 3 quarters before it's break-out to the upside. The current episode is much worse than 2001-02 and the likely consolidation period is more likely to be longer but there will be plenty of volatility for traders.


For S&P500, there is a fairly strong support at 910-915 and resistance at 925-30. For Nasdaq, there is support at 1,820-1,825 and resistance at 1,850-1,855. Most likely the market will be range-bound but I suspect that the risk of the ISM is to the upside and that could drive the stock market higher. I will be positioned for long in the morning session.

If the bet is that ISM will come out strong, the main beneficiaries will the capital goods. CAT was down almost 5% yesterday for no apparant reason. There is a strong resistance at 33.00 but if that breaks down there is even stronger resistance at 32.00. On the upside, we'll be looking at 33.5.

If the market is strong, GOOG might test the highs of 427-8 or it could test the lows of yesterday - it is possible that it could test 410 on the low side. Clearly it bounced of the low-end of the Bollinger band yesterday which suggest somewhat of a bullish trend but in order to negative the mixed signal from the daily chart, it has to convincingly break the 430 barrier.

GS might test the high again, around 149-50 but there is some strong resistance around 148. Will go short if it moves up too much.