The week ahead 6/06 - 6/10

Recently I have been talking about the stars aligning for a correction. We have had three consecutive weeks of bad ecomnonmic data and all of the major indices are now failing to hold their 50 day moving averages. Some experts believe that 150 day (1287.28) and 200 (1248.04) day moving areas are the most important but you cannot ignore the fact that we cannot stay above the 50 day. Bad economic data and a breakdown of technicals usually equals a correction. The market has been so strong up to this point that it had to take both bad data and technicals to take this market lower. A 5% corrrection in the S&P was 1302.05 and now eyes are on a 10% correction that would be 1233.52. Will that happen? At this point I don't see why not. Here are some factors why this could happen; through March the S&P had a high of 1344.07 and then made a low of 1249.05. From that low on March 16th we rallied to new highs on May 1st (1370.58). We made a new high by 26.51. My theory is if we can do it on the upside then it could happen on the downside. A lot of times the market will make a new high or low by the same amount that it did in the other direction. That would mean if we continue to stay weak and make a new low, the new low could be made by 26.51 points which would put the S&P at 1222.54 just below a 10% correction at 1233.52.

Looking ahead to this week. The past few weeks we have had different leaders in the market. The Dow Industrials and Dow Transports were by far the strongest while the Nasdaq was the weakest, leaving the S&P in the middle. That has now changed; the Dow Industrials took out their May low and had a near double bottom from April. The Dow Transports also took out the May low but came up short of the April low. The Nasdaq has not yet taken out its April low, leaving it the least weak market. The S&P is the most important market and and they are almost as weak as the Dow markets because they have also taken out their May low. Going into Monday the selling pressure will accelerate if the Nasdaq takes out their May low (2250.25) and if the VIX takes out its April high (20.03). If they both hold these areas then I will be less aggressive with my selling and could possibly be a small buyer. I will be looking at my S&P charts along with the other markets for confirmation to either side. We are in the middle of rollover so expect to see some violent moves up and down.

ES_F

SPX

DJI

DJT

NQ_F

VIX

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