9:00am (EST)

“This past Monday was a negative close for the market and had it been positive, we might have factored in a possible trend change as it would have been the third-straight positive Friday/ Monday close for the market.  Futures were showing a strong open last Sunday night when we went to press but Monday ended with a 250-point swing on the Dow after a nearly triple-digit gain at the open.

We saw signs of the VIX tripping 25 which still has us feeling bearish and we don’t believe the upcoming earnings cycle is going to be a good one. If companies are going to miss expectations, the next 2 weeks will be the time they confess.

We also mentioned the week after June options expiration is extremely bearish, historically, for the market and last week’s economic news was lousy.  There are a number of key events this week so no matter where the market ends on Monday it will only be a start of something better or worse to come.  The bulls will need a lot of headlines to go their way to keep a sustained rally going while the bears are hoping fundamentals take over.” (from 6/17/2012 Weekly Wrap/ Monday Morning Outlook)…

The aforementioned tidbits were right on cue as many of the events we expected to move the market, did.  The bulls got the news they wanted as Greece put in place the government they needed to stay in the eurozone, at least for now, while the Fed announced an extension of its “Operation Twist” program until the end of the year.

The market ran on a sugar high until Wednesday after hearing the Fed news but ended slightly lower after testing key resistance levels.  We said there we a few more lines of defense the bears were holding before there would be a trend change and Hollywood couldn’t have written a better script.  We said in our Daily on Wednesday afternoon the market could be reaching its peak and Thursday morning, futures were mixed.

The bears got the news they wanted to hear as the Philly Fed results were a disaster.  The survey came in at (-16.6) and nearly tripled the previous month’s (-5.8) negative activity.  Anything below zero shows contraction.  We warned our subscribers Thursday morning before the open this number could weigh on the market (along with jobless claims which showed no improvement).  As the debate heated up on what little the Fed had accomplished, the selloff picked up pace as the market ended the session 2% lower.  Friday’s gains were a retest to resistance which was prior support. 

There were also a number of high profile earnings warnings from Adobe (ADBE, $31.57, up $0.34), FedEx (FDX, $90.54, down $0.09), Pepsi (PEP, $68.70, up $0.20), Philip Morris International (PM, $86.01, up $0.41), Proctor & Gamble (PG, $59.83, up $0.08) and Ryder (R, $35.44, down $5.31) just to name a half-dozen.  The S&P Volatility Index ($VIX, 18.11, down 1.97) went ballistic.

This week’s action could be just as exciting and we have a ton of chart work to cover.  If our forecast is right, last week’s bear victory is only the beginning of a major meltdown for the major indexes but we can never count the bulls out, especially if they hold support.


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