Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
As I type yesterday we had a 1.3% down day and today a ~1.2% up day on the S&P 500. 180 degrees. Just a chop fest. For you technical types yesterday we had an engulfing candle to the downside which is usually very bearish. And a close on the LOWS of the day. Bearish. What did it lead to? Not only a gap up (that was originally sold) but then a rally all day on rumors. As I keep saying, technicals have a lot less use in a rumor headline driven market.
1340ish remains a key level above – bulls can take heart in the right side of the ‘shoulder’ of an inverted head and shoulder formation still being created. This was discussed last week as a potential outcome. S&P 1305-1335 has been the range here the past four days; bulls will want to see this continue and then a break out and above the 1340-1360 level afterwards. Should only take 2-3 good rumors to accomplish. 
One thing you have to say, with all the world falling apart (global slowdown, Europe mess) this market cannot fall more than 11% from peak as everyone assumes central authorities will keep throwing things at the wall until something works. While fundamentals matter less when intervention dominates, I expect July to be tricky as earning forecasts for the back half of the year are extremely aggressive. Based on the few companies reporting the past 3-4 weeks we see a lot of warnings and cutbacks on Q3.
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