Short-term Outlook:  Neutral (since June 3, SPX 924)

Intermediate-term Outlook: Neutral (since April 9, SPX 843)

Following Through On Weakness

06/22/09 3:20 PM EST

On Friday morning, we discussed the likelihood of the S&P struggling on the upside if it opened in the 925 - 930 range due to a variety of factors, and the index has played out that weakness pretty well heading into today's close.

As a result, we're seeing a swing in the other direction in some of our signposts and more sensitive indicators.

In the table below, we can see that a few signs have triggered that usually result in a bounce over the next couple of sessions.  Big drops on a Monday, declines before an FOMC decision, and large declines following an option expiration all have tended to lead to short-term rebounds going into the middle of the week.

We're also getting some oversold indications in the intraday version of the STEM.MR Model which has usually meant that any additional downside is only temporary and we'll see a rebound over the next 1-3 sessions (especially once the model starts to curl higher).

A consistent exception to that rule is when we're undergoing a trend change on a higher time frame.  There is some danger of that here, as we discussed in the timer charts on Thursday.  Besides, the S&P didn't respond all that well to the last oversold signal (strike #1) and it has failed to hold well at what should be support (strike #2).

I don't see much in the way of technical support around here as the S&P trades near 895, and so far the market has demonstrated most of the classic signs of a "trend day" where it closes at or near the day's low, so I'm not expecting a major upside reversal before the close today.  If we would happen to get another bad day tomorrow that took us down near 880ish, then I'd likely be looking for a long-side trade into the FOMC decision.

SHORT-TERM (USUALLY LOOKING AT THE NEXT 1-5 DAYS)
BULL / BEAR	SIGNPOST	% POSITIVE, #, PROFIT FACTOR	TIME FRAME	TRIGGER DATE	NOTES
	Up Volume Ratio < 10% on a Monday	72%, 32, 2.6	2 days	06/22
	S&P down -2% on a Monday	75%, 51, 3.1	2 days	06/22
	S&P down -1% two days before an FOMC decision	69%, 13, 4.5	2 days	06/22	The last six were positive, avg of +3.5%
	S&P down -2% the day after option expiration	88%, 17, 8.3	2 days	06/22
% Positive:  the percentage of time the S&P was higher the given number of days later #:  the number of occurrences in the study Profit Factor:  using long trades only, this is the gross profit made from winning trades divided by the gross loss from losing trades (anything above 1.0 suggests an upside edge, and the bigger the better)