S&P Tests 1040 Level Again

The market has been both lower and higher already in early trading, as a few economic releases swayed early trading. The CaseShiller Home Price Index for June rose to 148.0 from 146.5. That was a slight improvement, but most of the housing slowdown that has been talked about began in July, so this report will likely be taken with a grain of salt until we see how July fared.

The Chicago PMI for August hit 56.7, which is below the 57.0 that was expected. This likely weighed on stocks early on. But the consumer confidence report surprisingly rose to 53.5 from an expected reading of 50.0. This was a bright spot, and stocks rallied after the number was reported.

The dollar is lower today, as are oil prices (down near $74), while gold is higher near $1245.

Asian markets were lower overnight, led down by Japan which is still struggling with the Yen trading near 15-year highs, which hurts their export-driven economy.

The 10-year yield is back down to 2.50, after briefly spiking to 2.65% last Friday; and the volatility index (VIX) is still above its 50-day average at 26.51.

Trading comment: The market once again tested that SPX 1040 support level this morning, and so far it has held. Friday's rally was very solid, with excellent volume and good breadth. But this type of follow-thru action is not inspiring. Technically, as long as Friday's lows are not broken, the nascent rally attempt is still considered valid, and we still could get a follow-thru day. But if 1040 is broken, it could open up the gates to further technical selling.

First, this is August and trading volumes have been very light. Yesterday was one of the lightest days of trading all year. So its not surprising to see the market get whipsawed. Second, the price action can often be frustrating as long as the major averages are trading below their 50-day and 200-day moving averages.

The market remains in a tough technical picture, with lots of overhead resistance. But we remain oversold, and bearish sentiment is already very high. This combination makes me think the downside should be relatively limited at this juncture, while another rally could spark additional short-covering.