The index markets are celebrating takeover news on the domestic and global fronts this morning. MSFT appears ready to launch a bid for YHOO which is higher by about +14% in the pre-market session. In addition, Reuters is bid sharply higher on another takeover bid in the news arena. European markets are higher, but not substantially and one wonders if these markets will remain quiet ahead of a Monday holiday.
As for the domestic action…up, up and away remains the singular theme, particularly in the large cap arena. The market, as I have pointed out in the last few posts, is at a critical juncture – one that has the potential to lead to continue and generate significant trading upside from current levels. This has been the “skeptical climb” in my opinion, a rally that continues to defy explanation after a frightening plunge a mere 6 weeks ago. The trail of tears seen underneath the market are those bids being placed by desperate shorts trying in vein to cover positions that, on the surface, seem to be coverable only at the markets current pricing. And that is painful for those short around the 1450 level.
Today’s trade should be interesting and potentially volatile as the SP probes into new contract highs and rests within the shadows of the ATH made in March 2000. Keep in mind that the index made its high close on consecutive sessions at 1527 and change. The intraday high was 1552 and change, followed by a sharp reversal that session. What do we need to learn from this brief history lesson? Simply this…when markets are trading to/near/through All-Time-Highs, one should always be on the lookout for the potential profit taking reversal trade. This morning, assuming we open around the current bid of 1514 in the SPM contract, and the fact that the employment report was a touch soft, I have to consider today – POTENTIALLY SPEAKING – today to be one of those reversal sessions. The key word is POTENTIALLY as selling short this market has been a nail in many traders coffin…and yet the setup is there. A news induced bid to overall marketplace and new contract highs off a questionable employment reading.
As for support/resistance zones…here is what I am looking at for today’s session in the SPM contract.
Resistance should be found in a zone from 1515.50 to 1518…any 30 minute close above this zone is a step towards a potential short covering “blowoff.” However, I would not be chasing the long side up here. Instead, I would wait to see if the market can extend into the 1522 area before making any bets. If the SPM can hold up in 1521/1522 area the table should be set for a strong move into the bell and early next week. If the SPM fails to gain traction in the first resistance zone (15.50 to 18.00) then a sale for a move towards 1509 support is in the cards. Support is found between 1510.20 and 1508. Below this zone, look for the contract to move back into its chop zone from yesterday between 1507 and 1504.50.