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S&P 500 Poised To Undercut April Lows

The S&P 500 is poised this morning to become the first of the three major stock indexes to undercut its low from March and April.

With the futures trading down 12 points this morning after closing 4 points below fair value on Friday (making the futures down 16 points this morning), the index should easily undercut its March 22 low of 1081.19 on this morning's open, after the index closed at 1085.78 on Friday.

Traders got their first sign that something was wrong at Friday's close, when futures traders sold off their positions to close the futures at the lows of the day. When futures traders send a message that they didn't like what they saw in a day's action, you can bet on follow-through the next day. The futures lead the market rather than follow it, for reasons that we'll go into in further detail soon.

Surprisingly, there was no attempt by anyone to try to prop up the futures market this morning. Instead, the futures sold off during the important 5:30-6 a.m. timeframe, when U.S. traders begin to take positions. And yes, we were talking about the elusive Plunge Protection Team when we suggested a possible intervention in the market this morning. This would seem to be the day for an intervention, if ever there was one. But the futures came off their worst levels around 8 a.m., so someone did some buying this morning.

The Nasdaq is holding up well this morning on a positive preannouncement from RF Micro Devices , which is probably more bad news than good, because it has so far left its April 4 gap at 1638.80 only half-filled, a sign that the index could come back at some point to fill that gap if it rallies from here. But the Dow could retest its 9100-9500 lows today, a good sign if it holds. And today is a cycle turn, so a short-term low today is a possibility.

However, the market needs to reverse during the day; another 2% down day today for the Dow and S&P would produce a very reliable bearish candlestick pattern called "three black crows" that last occurred two weeks ago at 1150 on the S&P and 10,000 on the Dow. If that happens, a retest of the October 1998 lows would become likely. So a close well off the lows today is sorely needed. But this market has been oversold for two or three days now; an oversold market that keeps selling off is a worrisome thing.

But after the biggest-ever drop in the unemployment rate on Friday, this market may be just starting to price in a widening contraction. Unemployment is normally a lagging indicator, but given the importance of the consumer to the economy this time, rising unemployment could negatively affect consumer confidence and tip the economy into a full-blown recession.