Today's Update:  We will remain Neutral.

Why:  There are several reasons why the 3-day spurt to start the month may start to sputter:

*  There have been 6 times that the S&P 500 futures have rallied at least +0.5% for three straight days into a holiday break.  All 6 times, the futures were negative two days later (7/3/97, 7/2/99, 5/26/06, 12/24/07 and 11/26/08).  There has been only one time each day was up at least +0.9% (7/3/97).  Even going back to 1950 using the cash S&P index, that's the only occurrence.

*  Forgetting about the holiday for a moment, there have been 39 times the futures were up 0.5% for three days heading into a Friday, and over the next 3 days they showed a positive return only 41% of the time.  There were 7 times of +0.9% gains, and over the next 3 days they were up 2 times, down 5 times.

*  This was only the 10th time in the history of the S&P 500 (dating back to 1928) that it started the month with three straight gains of +0.9%.  Of the others, the index declined 6 times over the next three trading days (the rest of the month was mixed).

*  This was also the 10th time the futures gapped up at least +0.9% on the morning of a Payroll report and managed to close above the open.  After the others, the S&P showed a positive return during the next week only 1 time, and sported an overall average of -1.8%, with an average risk (-3.3%) that was three times greater than the average reward (+1.0%).

So as noted on Friday morning, a rally into resistance (check) that was accompanied by overbought conditions (check) should lead to a give-back this week.

Current S&P futures:  -8 points at 1096

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Sentiment ():  Overbought

Trend ():  Stuck in a trading range

Support/Resistance ():  1040/1100

Other ():  Rallies such as we've seen tend to peter out quickly

Today's Update:  We will remain Neutral.

Why:  During the market's breakdown in early July, we saw a number of examples of excessive pessimism, such as deeply oversold conditions, and give-up among Rydex traders and individual investors.  After sentiment recovered from that during a 10% rally, we saw some encouraging signs, such as the advance/decline line making a new all-time high.  But indexes like the S&P 500 remained mired in a pattern of lower highs and lower lows, so price action was dubious.  Since then, we saw some worrisome signs, some of which the media has grabbed onto, like the Hindenburg Omen.  Now stocks are threatening to break down under support.  There is anecdotal evidence of too much pessimism once again (mainstream press about mutual fund flows into bonds instead of stocks, firms rolling out "fat tail" funds, and celebrities warning about pending market crashes and advising the masses to stay away from stocks).  Lately, some of our indicators have started to reflect that, including a dearth of money in leveraged long funds at Rydex and investors clamoring for "fear trade" currencies.  According to our indicators, though, we're not yet at a pessimistic extreme, and given the poor price action we're not eager to add exposure.

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Sentiment ():  Mostly neutral

Trend ():  Mixed int-term trend

Support/Resistance ():  1040/1140