9:00am (EST)

Our last headline on Friday was “Another Perfect Strom”, and as it turned out, it was the perfect title.

June was an incredible month for us although the market was flat but the volatility was insane.  Turns out, the charts have been right on cue and what seemed like disaster was averted when the bulls held support and had the mother of all rallies.

We “grinded” it out and made some sweet calls in June but what it all boils down to is that we are back at the top of a trading range that has been ongoing since February and we either break out or the market fades.  We have been on the bulls back since October 2010 and called for a rally until April 2011.  Check One.

We said there would be a pullback in late February into March and another dip in May that would last into June.  Check two.

Our year-end targets for 2011 remain on track.  Check 2- and-a-half.

So is check 3 now, or is check 3 later?

We said last week the technical picture remained mixed but who would have thought the bulls would have their best week in 2 years after an 8-week shellacking?

The Dow jumped 168 points, or 1.4%, and closed at 12,582.  We said the blue-chips would make a run to 12-6 and you can’t get much closer than that, folks.  The chart we from last week showed the Dow trapped between its 100 and 200-day moving averages (MA’s) and the index was right at support (black line, orange circle).  As you can see, the index is right at resistance (blue line) and is looking to break out.  Resistance is now 12,800-12,850 but if cleared we will easily see 13,000.  Short-term support is at 12,350 and then 12,000.  The Dow started the week at 11,934 and added 648 points for an impressive 5.4% gain.  For the year, the Dow is up 8.7%.  

 

The S&P surged 19 points, or 1.4%, to settle at 1,339.  The index was holding on to the slimmest of gains for the year but closed above the 1,333 level, which represents a double from the March 2009 low, for the first time in more than a month.  The index was also bouncing between its 100 and 200-day MA’s and was facing a breakdown at 1,250 (black line, orange circle).  The S&P’s next area of resistance will be 1,350 (blue line) and if cleared 1,375-1,400 will come into play.  Support is at 1,300 then 1,275.  The S&P 500 started Monday at 1,268 and added 71 points for the week, or 5.6%.  YTD, the index is up 6.5%.

The Nasdaq soared 43 points, or 1.5%, to finish at 2,816.  The index was able to take back the 2,800 level after bouncing off strong support at 2,600 and its 200-day MA (black line, orange circle).  Tech has made a nice run back to resistance (blue line) and is looking to challenge its 52-week high of 2,887.  If cleared, pencil-in 3,000.  Near-term support is at 2,700 then 2,650.  The Nasdaq was at 2,653 to start the week and zoomed 163 points, or 6.1%.  For 2011, the index is up 6.2%.

 

The Russell 200 advanced 13 points and finished at 840 after retaking the 800 level on Monday (black line, orange circle).  The index faces resistance at 850 (blue line), but if cleared, could make a run at its 52-week high of 868. 

The S&P Volatility Index (VIX, 15.87, down 0.65) fell back below 20, a key level we have been outlining for weeks following last week’s big rally.  We mentioned a reading under 20 indicates calmness and confidence while a print above 30 indicates fear and panic.  The VIX fell nearly 25% for the week, its largest drop since August 2007, and could trade down to 13-14 (black line) on a continued rally.  Retail investors have been pulling money out of the market for months and if they decide to get back in at new highs, the bulls could be off to the races.

 

As we look out into July, this week could be non-eventful as Wall Street awaits the start of 2Q earnings season.  Greece, which made progress last week by agreeing to new austerity measures, will be yesterday’s news so that cloud has been lifted for the moment.  QE2 has come to an end but we are sure the Fed will use whatever bullets it has left to keep the economy afloat which should continue to help the market.

If the market can get better-than expected earnings then we should be able to hit new highs in July.  However, if companies come up short on Wall Street’s expectations then the market faces a retreat and we remain stuck in a trading range with pressure to the downside.  In mid-February, we said the Dow would test 13,000 when the index was at 12,300; the S&P would hit 1,375-1,400 when it was at 1,340; and the Nasdaq would test 3,000 when Tech was at 2,800.  However, in the same breath we also said to look for a pullback into March before the bulls pushed new highs until the end of April.

We then called for May’s pullback and here we are again.  While we expect the market to hit our aforementioned short-term targets, our 2011 year-end targets of Dow 14,000; S&P 1,500; and Nasdaq 3,400 – which we outlined on January 19, could come into play.  However, we doubt the bulls have enough steam to push these targets halfway thru the year which is why we think we get a pop to new highs and then fade sometime in mid-July.  Then again, bull markets often leave those on the sidelines in the dust so we wouldn’t rule anything out.