Are the Market Sniffles Coming?

Many of you have asked me to give an update on my market thoughts. Below is an excerpt from the morning comments that went out to clients today. It gives a lay of the land for the next several weeks, if not longer.

Good morning. As if feeling fine one day and waking up the next with a familiar scratchy throat that you know often means that a cold is on its way, many a player this morning likely has that same scratchy "market" throat.

Weren't things just fine a few days ago? Weren't we headed straight up to post massive gains on top of the 40% ones we had seen in the past eight weeks? Well, a small dose of reality has come into play (as well it should), as the S&P 500 has backed off 50 points (about 4.5%) in the past week. We had warned of this, having written several times that we were on the cusp of an upside breakout, but that very potential near-breakout also presented a very low-risk selling opportunity should it not occur. And to date, it has not, and indeed, the market has pulled back.

We had recommended going short on Monday with a close under 910.50 in the June S&Ps (they closed at 909), and we put out an initial downside target at 882 to 876, which was where yesterday's lows were (880). We'll assume you've covered half there. (We can now lower the buy stop on the other half to consecutive higher closes above 909.25 or a move above 929.50.)

Now the game really begins: Was the recent high a major high or a minor one? We believe, given how much buying was done in the week preceding the high, which saw the futures move from 862.50 up to 929.50, that many of these buyers likely need to experience some further tummy-twisting feeling of having closing prices be less than where they bought. (Without that, what type of fun party would it really be?) So it would not surprise us much to revisit the mid-to-low 860s, if not get down to near the TDST line, or TD setup trend line, 838.50, which started the most recent TD setup higher.

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Rick Bensignor is chief market strategist at Execution, Ltd. He was previously chief market strategist at Morgan Stanley Principal Strategies, responsible for providing the firm's proprietary traders with strategic investment and tactical trading ideas. Prior to that, Bensignor was the corporation's Institutional Investor-ranked chief technical strategist, overseeing the firm's banner technical research product. He was formerly the head of technical analysis, futures and commodities at Bloomberg, where he was responsible for the product development, sales and marketing of those applications. Before that, he was Morgan Stanley's commodities technical strategist and head of the institutional commodities sales desk, which followed his 14-year trading career as a broker and independent trader on the floor of several New York futures exchanges.

In addition, Bensignor is an adjunct professor at New York University's School of Continuing and Professional Studies and was an adjunct professor at the New York Institute of Finance, where he taught technical analysis and trading courses for five years. He wrote the book New Thinking in Technical Analysis: Trading Models from the Masters and contributed the chapter on futures for Investor's Business Daily Guide to the Markets, and has written several articles in the Bloomberg magazine. He appears regularly on financial news television and is often quoted in major global financial media.