S&P 500 hangs in the balance

Overnight the tone of futures markets has been pretty negative, pushing the major indexes to levels that could retest the trend line support at open if we stay this low.  The S&P has been flirting with 820, a very key level that if significantly violated to the downside, 813 and 800 remain as important support levels.  After 800, we have a vacuum that could reach the November lows.  Of course a violation of 820 on the downside will be seen as a breakdown of the modest uptrend and that could catalyse a wave of selling.

SPY

One discouraging sign is since the small rally in early January, every time the S&P 500 has bumped the 50 day moving average we’ve seen a wave of selling.   Market participants are not commiting to long term positions, but range / trend trading short term and this action is increasing volatility.

Non-Farm Employment Change -533k

Today’s non-farm employment change was nearly twice as bad as consensus expectations and the worst in 34 years, slamming futures on all major US indexes sharply lower.  This economic data confirms that the US economy is in a deep recession and puts in jeopardy the consensus GDP estimate of -4%.  We may see a number as bad as -8% on the next quarterly GDP report because of the massive contraction in employment and ISM data.

Should the negative sentiment continue, this sell off could push markets much lower.  Futures are hovering at support levels and could be pushed significantly lower at open.  Watch this market closely today.  The price action will be extremely important in determining the next likely move.

Volatility could surge on VIX technicals

Volatility is potentially poised to surge as the VIX six month chart is showing a large ascending triangle formation.  Below is a chart showing both the Bollinger bands with 50d moving average and the ascending triangle with resistance at about 80 and a support trend line from September until now showing the massive surge.

I think there is a high likelihood of a retest of the 80 area and possibly a break above in the next few days.  Right now the NYSE and NASDAQ McClellan oscillators are showing that the market continues to be overbought and must correct.

It’s worth noting that a lot of false bullish signals in the stock market can occur when volatility is this high.  I’ve seen many skilled technicians get suckered in to buying the tops of these rallies.  Be careful!

Recession is official; economic data worsens

Now that the recession is official, many are taking their queues from economic data and yesterday we saw very negative readings on ISM.  In fact, the worst in 30 years.  This shockwave sent the markets down sharply, giving back much of last week’s gains.

While yesterday’s vicious selling may seem overdone, and may even yield some light buying ahead of the next wave down, I believe we are simply confirming the six month falling wedge pattern and will be retesting the intraday lows of 741 in short order.

On a side note, the tremendous easing the Fed is implenting by buying bonds, cutting rates and opening the lending windows to all will eventually yield to a very inflationary environment.   Commodities and currencies will begin to become attractive early in 2009.

US equity futures rally on IMF plan

Coordinated efforts to stablize global markets are now underway by various international economic industrial and emerging powers.  Futures are up 3% in anticipation that this will increase investor confidence.  We may see an interim bottom formation as a result.  Watch closely and trade carefully.