Shore Capital Management LLC

Our comments from 6/14/10 stated we had received oversold signals in the U.S. equity markets between 6/3/10 and 6/14/10 and the market may be at or near at least a short term bottom. Last week equities rallied right into a very strong resistance level.

E-mini S&P futures (basis Sept) has reached a major resistance range from 1115 to 1132 range. If it breaks this area the next major resistance level would be 1150 to 1163. If the market breaks out of this range, there is a strong possibility the market could test the 1210 to 1215 range.

Initial support can be found in the 1111 to the 1105 range. If the Sept contract breaks this level than the next support level is 1097 to 1090. In the short run we are beginning to receive signals of the market approaching overbought.

The market is reaching a pivotal moment as to whether the market should take the next leg up or could it test the 1090 to 1084 area. Could this be the high of the current trading range?

The E-mini and DJ and NASDAQ markets have reached major resistance areas as well. Within the next few days we should know if the market is moving higher or correcting.

From our comments on 4/26/10, we began to ask if the equity markets were becoming overbought. The E-mini S&P futures contract (basis Sept) gave signals of the market’s potential sell off. By 5/12/10 (post the “flash crash” of 5/6/10 where our downside targets were hit) the market was beginning to rally back and we received signals of the market at least moving sideways if not higher.

In the past few weeks we have experienced an increased correlation between the decline of equities and the decline of the Euro and ever increasing volatility swings.

From a fundamental standpoint, if EU’s economies stall, they will be buying less US products and services and potentially damaging our recovery. Keep in mind the depreciation of the Euro causes $US priced items to be more expensive (including $ denominated commodities) overseas. This was seen as many commodities prices have fallen in recent weeks. As commodity markets decline, so do commodity-linked currencies such as the Canadian $ and the Australian $.

The depreciation of the Euro has taken on a life of its own as riots in Greece occurred, the fear of contagion spreading to the P.I.I.G.S. countries and possibly to other parts of Europe. 

As we witnessed in 2008, the major tenets of an economy are confidence and liquidity. If one tenet disappears or is reduced the other will also disappear or be reduced causing more uncertainty in the markets. We have been experiencing this in recent weeks due to the confidence crisis in Europe.
 
The Euro zone is a loosely tied group of countries utilizing one currency, but with no major economic infrastructure to intervene in times of economic hardship. Perhaps this is the opportunity for Europe to develop a stronger economic infrastructure.

To understand this lack of infrastructure in American terms, think of a U.S. state needing a bailout, but instead of the topic being debated in Congress, it would be debated in the other  49 state assemblies and then the Governors of each state would meet to determine if they would bailout the other state. This scenario in Europe creates an environment of slower decision making to support Greece. The slower the process moves, the more uncertain markets become and risk aversion increases.

Many economists and traders in recent weeks have called for the demise of the Euro zone. We don’t believe the demise of the Euro will occur as the Europeans need the EU and Euro zone to remain for two major reasons:  1) The Europeans want The EU as another reserve currency beyond the $US. 2)  The EU as a combined economy has stronger weighting in the world than each member country has on its own.

On 6/3/10 we received a signal in the E-mini NASDAQ futures (basis Sept) of the market becoming oversold. On 6/11/10 we received an oversold signal of the E-mini DJ market. As of this writing tonight we received an oversold signal in the E-mini S&P futures contract. With the confirmation of the equity complex being oversold, we believe the market could rally in the short term, barring any surprising negative news.

TheE-mini S&P futures (basis Sept) has initial resistance in the 1092 to 1103 area. If it breaks above this range, the next major resistance level is 1135 to 1158. There is a potential we could see a rally towards the 1210 to 1215 range.  Initial support level is the 1082 to 1074.

The Euro (basis Sept) has initial resistance in the 1.23 area. If the market continues, the next resistance level is the 1.26 to 1.28 range and potentially pushing to 1.31 as the shorts gets squeezed.

On 4/26/10 we began to question if the equity rally, since correcting in February had reached an overbought situation at the end of April. The markets seemed to need a reason for selling the equities. The situation in Greece and the selling of the Euro was the fundamental reason to offer a meaningful correction. Read "Greece is the Word".

On 4/27/10 we received longer term signals in the DJ, S&P and NASDAQ futures to at least offer a sideways market if not a selling market. During the past few weeks we have received some confusing signals. On 5/20/10, we received a stronger sell signal for the E-mini S&P futures contract (basis June).

From the recent weeks of selling, the market could find an upward bounce, but we believe the market will try once again to test the recent lows of 5/21/10 and 2/5/10 at 1051.25 and 1036.25 respectively before moving higher.

In the short term the E-mini S&P June futures has support in the 1057 to 1036 area. If this test fails and the market moves lower, than our next level of support is 1010 to 971. We do have a longer term price point of 890. This should be the bottom or near the bottom of this correction. We don't believe the market should reach the 890 price point, (unless the fundamental news gives more reason for the market to fall) but if it should it would send a lot of fear into the market and it probably be a choppy way down to that level.

The resistance for the market should be found at the 1075 to 1095 area. If the market should find a bounce, the next resistance level would be 1110 to 1130 area. As this is a holiday week, there could be a possibility for the market to bounce later this week primarily due to shorts covering their positions for the holidays.

The remainder of this week will also produce more economic reports that could add more fuel to the fire of selling if the reports are not better than expected. And of course on Thursday the weekly jobless claims will be released.

Stay tuned and put your seat belt on, this could be a bumpy ride.

In recent weeks the discussion of the Greece bailout continued to increase in popularity. Initially many thought it would quickly become yesterday's news.  However with each day uncertainty increased as to if and when the bailout would occur and would the increasing uncertainty cause a crisis of confidence across Europe. There has been a gradual lack of confidence as the euro has been selling since last November.

Since the equity markets last correction in early February, there has been a sustainable rally connected to increasing economic improvements. But in the last few weeks market participants began looking for some kind of correction. But what would cause it?

In our comments from 4/26/10 we asked if the equity markets were overbought and potentially nearing a correction. On 4/27/10 we received longer term signals in the DJ, S&P and NASDAQ futures (basis June), that at least the market could be going sideways if not selling off.

Initially the fraud charges against Goldman Sachs caused a quick selloff, but then the markets quickly bounced back. However last week witnessed the market quickly move from cautiously nervous to panic as the Dow Jones dropped 1,000 points with the fear of European contagion. Keep in mind as the euro depreciates, U.S. products and services become more expensive overseas. All of this fear could slow down the global recovery.

Overnight the EU structured an aid program to defend their currency. This has caused a relief rally overnight in the euro and equities around the world.

Is the correction over or is there more to come in either price or time (sideways trading market)?

Since peaking on 4/26/10, the S&P futures corrected 13% intraday. The emini S&P June futures contract has resistance at 1169 to 1185. Support at 1148 to 1128.

In closing, it seems fitting to quote the song "Grease" written by Barry Gibb:
"This is the life of illusion
Wrapped up in trouble laced with confusion
What we doing here?"

Since the last correction in the equity futures markets bottomed on 2/5/10 the equity indices have rallied and rallied and rallied. Intraday the markets have corrected. But based on end of day closing prices, the markets keeping grinding higher.

The Emini S&P futures (basis June) since 2/5/10 has been up 8 of the last 11 weeks.

The Emin DJ futures (basis June) has been up 9 of the past 10 weeks. And has been up each of the last 8 weeks.

The Emini Nasdaq futures (basis June) has been up 11 of the past 11 weeks.

The question everyone is asking: how long can these indices grind higher without a correction? Granted the economic news continues to show improvement and corporate earnings continue to beat estimates. But longer term indicators are showing the market overbought.

We are not looking for a crash, but just a healthy correction before the next up leg of this market.

For the Emini S&P futures (basis June), we stated on 3/8/10 the market had strong resistance in the 1220 area. Currently there is resistance at the 1218 to 1224 range and possibly up to the 1240 area.

There is initial support in the 1206 to 1191 area. If the market breaks below this range the next support level is 1169 to 1150 range. Keep in mind the 1150 range, was initially a strong resistance level for the market to break and may now be a strong support level.

As the emini S&P futures contract (basis June) bottomed on 2/5/10, the market has rallied for the last several weeks. We believe the market may be becoming a bit overbought. We are not looking for a major correction in the market, but more of a minor retracement.

Initial support is found in the 1142 to 1139 range. If this is broken, the next level of support is found in the 1137 to 1134 range. If 1136.50 is taken out, there is potential the market could reach 1128 to 1122.

Initial resistance is found at 1149 to 1152. The next level of resistance is 1154 to 1157. There is very strong resistance at 1160.

As we wrote about on 3/4/10, the equity markets were waiting for the release of the February jobs report. There was a general sense last week that the unemployment rate and jobs growth could be a higher rate and increased negative jobs growth due to weather related issues.

The market was expecting 9.8% unemployment and a job loss of 50,000 to 150,000. If the data reported no more than 100k jobs lost, the market probably would not have moved much. If the data was greater than 100k jobs lost, than there was a higher probability of a sell off. The released data showed unemployment stable at 9.7% and only 36,000 jobs lost instead of the expected 50k to 150k. The data also reported temporary employment and hours worked increased.

The released data could be perceived as a relief for the markets of an economy in transition from recession to recovery is finally beginning to show stronger legs. However the U-6 rate of unemployment did increase from 16.5% to 16.8%.

We now believe the resistance level of 1100 to 1108 (basis March) has now become a strong support level. There is a high probability the market will retest the highs made on 1/15/10 of 1147.25 very soon. As we noted on 3/4/10, our next price goal is 1145 to 1168. Major resistance in the 1220 area.

In the immediate future, the next level of resistance is 1137 to 1143. If this level is broken, the next level of resistance is 1146 to 1150.

The next leg of support for the market would be 1132 to 1128. If the selling persists the next level of support would be 1125 to 1120.

In the recent move, the S&P emini futures (basis March) bottomed at 1040.75 on 2/5/10. On 2/11/10 we received a buy signal and are still holding the buy signal. Since 2/18/10 the market hit a major resistance of 1100 to 1108 and could not close above 1106 until 3/1/10 and reached a high of 1125 on 3/3/10.

The question: Has the previous resistance level now become the new support level? The markets are waiting for today's initial job claims and the Feb Unemployment Rate to be released tomorrow.

If the market does hold this area the next resistance level is 1122 to 1124. The next resistance level after that is 1127 to 1129. Our next goal would be 1145 to 1168. This would test the highs set on 1/19/10. If the market continues on its next leg upward, 1220 should be a very major area or resistance.

Support can be found at 1117 to 1114. If taken out, the next support level would be 1109 to 1104. If 1101 is taken out, the market could see a correction.

On 2/11/10 we received a signal to go long the emini DJ futures (basis March). Since 2/18/10 the market has moved sideways as it reached a major resistance point. Our initial goal for this move was 10338 to 10429. At this time the high of the move has been 10434.

2009 ended the year at 10387. Now that the market has returned from the 2010 low of 9791 on 2/5/10, the market is struggling to decide if it should move higher. As some of the recent economic reports have disappointed expectations, its just one more reason for the market to struggle in its decision of direction.

The market will be looking next to the initial jobless claims and durable goods orders for an idea of direction.

The market needs to break above 10380 for the next up leg to be possible. Then our next goal would be 10520 to 10570.

The first level of resistance is 10370 to 10400. The next major resistance level is 10420 to 10450.

The first level of support is 10290 to 10258. The next level of support is 10205 to 10170.

The market has found initial support in the 9800 to 9900 range. First level of resistance is 10050 to 10120. First level of support is 9950 to 9830.