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The Dow Futures Report

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US Equities experience a stally in the rally

Fri, May 8 2009, 06:02 GMT
by Paul Brittain

Alaron

US EQUITIES EXPERIENCE A STALLY IN THE RALLY AS TECH STOCKS LEAD SWEEPING PROFIT TAKING ACTION.

US EQUITIES experienced “vapor lock” and stalled in today’s rally as profit taking in technology stocks spread across all of the major market sectors. Considering the recent run up in the markets and the “buy the rumor, sell the fact” psychology which has prevailed during so many recent equity rallies, it is not surprising that the markets sold off today.

The fall came in spite of another round of economic data showing that the global economic recession may be bottoming. The ECB (European Central Bank) cut interest rates to a record low and announced plans to enact a quantitative easing program through the purchase of $80 billion worth of Euro Zone bonds. The Bank of England also announced additional commitments to its economic stimulus programs. In addition, US weekly unemployment claims came in lower by nearly 7000. All of this data helped push the major indices to new highs for the year in the pre market sessions.

As the US markets opened, technology stocks, which led the major indices higher due to the strong cash positions of underlying companies, began to see waves of profit taking after analysts downgraded a number of telephone and communication companies. With pressure from technologies and stress test results looming, it was not surprising that the markets fell to test recent support levels (912.00 in the S&P). Once this level was significantly breeched, downward momentum began as stops were hit and profit taking began. In the aftermarket, financials regained some ground after the government announced that 10 banks would need to raise $74 billion of new capital. The market appeared to find some support it what could be considered a relatively low number.

Expect the overnight to be relatively quiet ahead of Friday’s release of US employment numbers. The main speculation will be if the surprisingly soft ADP numbers will carry through to the broader reading on US employment.

Technically, June Dow Futures hit resistance at the 8510 level before retreating to 8387 settlement. The market’s upward target level remains at todays high of 8540. A break of this level should have the market top out in the near term at 8592.
Support should be found at 8280, with a break of this level allowing for a test of 8208.

Published on  Fri, May 8 2009, 06:05 GMT