Futures point to a higher open on Wall St Tuesday, building on yesterday’s strong bounce back. Late last week we hit the measured move from the Head and Shoulders Pattern, a great spot to cover shorts and look to switch gears. In addition, after 13 out of 15 negative days in the Dow, the McClellan Oscillator reached -75, a level where we often see a bounce.
The questions now is, was that simply a dead cat bounce or can we start a new uptrend of sorts? How high can it go? This is why we map out Resistance Zones 1, 2, and 3. Overnight the SPY were as low as $131.80 after Fitch downgraded Japan, the world’s third largest economy. However, futures were able to shrug off the downgrade and resume their climb. Gold and the Japanese Yen fell as a result of cut to A+ from AA with a negative outlook, meaning further cuts are possible if the country does not get more aggressive in its plan to cut fiscal deficits.
As long as we stay above SPY $131-131.30, I see high probability that we see $132.80-133.10 (it could happen today). There is also a chance we retest the old pivot low of $134.25-134.55 (1343-1347) (this would likely take a few days). The Oscillator went from -80- to almost -40, so we still have more room to continue to the flat line.
It was nice to see the market lead by Apple (AAPL) and the Nasdaq yesterday. Healthy markets have clear leaders and are often led by more risk driven Nasdaq trade. We also saw some nice RedDog reversals across the board from weaker stocks that saw early selling yesterday.
The main issues weighing on the market at this stage are Greece’s possible exit from the Euro Zone, problems in Spain’s banking system and slowing growth in China.
Disclosure: Scott Redler is long SPY, AAPL, LVS.
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