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In May I offered that we should see 1362/1365 S&P by the end of the first week in June.

The S&P recovered nicely on Monday after undercutting 1360 and stabbing all the way down to 1350.

However, as mentioned in yesterday's column, as long as 1350 holds I think there's a better than average likelihood we could survive and find a low. The alternative is the market goes right off the cliff, a possibility that is indicated by the behavior in the BKX Index.



The run-off into the green on Monday recovering 1360 was on the surface at least a constructive signal. Of course, it’s hard to parse whether the run-off was a short covering rally into the close, or natural buying and bargain hunting.

Be that as it may, many of the usual suspects, such as Research in Motion (RIMM) and MasterCard (MA), roared back after being seriously punished.



 Apple (AAPL) came back somewhat as well but the sell on the news in the stock isn’t exactly encouraging for funds hoping to mark-up portfolios into the end of June.



Remember that institutions are typically restricted to a 90-day holding period for tax purposes and if they were accumulating into the Bear Stearns mid-March smash that would suggest the probability of a move up into June options expiration. Consequently, that is another reason that if current levels do not hold we could go off the cliff as institutions who are hoping to mark up portfolios may run for cover.

The question for Tuesday will be what happens on another down day in oil, especially on a move below 133, as it appears that it was the oil stocks that held up the market on Monday. If money doesn’t flow into the financials (whose chart evidenced by the BKX is not encouraging) and techs then the oil stocks may become a source of funds.

Conclusion: Monday evening’s action on the S&P futures down nearly seven points suggested a down opening on Tuesday morning. I would look to scalp long on a down opening as long as 1350 holds while a move over 1365 should lead to a turnaround Tuesday. The bottom line is that even if the 1360 level and the cycle turning point for the end of the first week in June is good and is a low as I assume, that we should still find an up-down-up sequence and a basing period of some time on the side. That suggests a possible narrow range day on Wednesday and possible some strength into the close of the week.






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