The S&P 500 recently bounced off support near 1,600, worked back up to 1,650 before finding minor resistance andturning down again. The bounce was shallow and appeared to be more short covering and fast money, thancommitted, longer term holders. The index is now looks set on retesting the 1,600 support area. With initial joblessclaim numbers slightly rising this morning, markets could either bounce or slip back to 1,600, depending how thedata get interpreted throughout the trading day. Lately good news on the economy has been a deterrent to higherstocks prices as investors believe the fed may taper off QE. Of course bad news is still considered bad news.
In aperfect world, investors want goldilocks economic growth, not too hot, not to cold. This would ensure fed keepsthe QE pump rolling along.
Market internals have continued to erode slightly in line with the markets recent pullback. With summer seasonalityupon us, and June having produced negative returns 7 of the last 9 years, we are leaning towards a violation of the1,600 support level. However we are respecting that level until violated.Overall we think this is a correction that will likely fall in the 5 to 10 % range, however potential of a breakout inyields and/or unleaded gas prices could cause problems for the markets.