Below, the Nasdaq 100 (NQ) mini future is stabilizing between monthly structural lows at 2575 and weekly structural lows at 2468. Any meaningful activity from the long side will have to take this market above the monthly lows at 2575 and get accepted. More importantly, from a Major monthly structural perspective, the market must close above the 2575 monthly low by the end of the week. Otherwise, going into June, we will have the first lower monthly closing since August 2011, which is more significant in light of the prolonged Jan-April up-trending condition. Monthly boundaries are very important from the perspective of longer term bias and sentiment and coming off an 8 week correction that has taken the NQ down > 300 pts, any monthly lower closing that violates the monthly trend in place could be perceived as weak and would imply continued correction into the summer. If the NQ closes back in the monthly channel (> 2575 by the end of the week) then we can expect a sideways condition to develop as was the case in 2011 with a possible retest of the April highs going into August.
We can also observe from above that the NQ mini future approached the 2011 highs at 2440 indicated by the black horizontal line across the chart. Any market that approaches old significant highs should find buyers and support. The NQ came back into 2468 lows last Monday (May 21st) from which we had a short covering rally that turned the short term trend back up. This short covering rally coincided with a 38% Fib correction of the August 2011 lows - April 2012 highs, which fits in with the thought process that a technical rebound could be due to develop. A weak scenario would see the NQ mini fail to close > 2575 monthly low support and proceed to get rejected above the 2011 highs below 2440. This scenario cannot be taken off the table just yet, given the macro-euro erosion that has come back to the forefront.
In the image below, I show the short term trend of the NQ on the 15min intraday chart with 3 day regression overlays and LE-2536.5 implied short term buy signal coming off short covering rally. So far, the market has not gained any acceptance > 2550 nor < 2500 level. The short term bias remains long with risk and the market trades above 3 day regression implying a short term trending nature may be developing.
The same logic applies to the the DJIA (YM-mini futures) as the market trades < monthly support at 12678. A June 1 closing < this level would imply weakness and sustained correction into summer. We can also see that the Dow mini is finding support at the trend line connecting 2011 highs projected into this year. Short term support should be found at these levels. This market has been accepted below 2011 highs, implying need for continued development of price at lower levels. Any weekly closing < 12318 would signify deeper correction.
We can also use the deflationary 'flight to safety' rally in the US 30yr and the USD as indications that reflation in risk is off the table short term. But, can make the argument that USD is short term overbought market that may need to take a break, which may coincide with relief rally in the stocks.
US 30yr bond market looks to be getting support at monthly upper boundary, just as stock appear to be losing support at monthly lower boundary - this inverse correlation is the implied risk in a long stocks position at this time. We would need to see the Bonds break down below monthly upper support, coinciding with a breakout in the stocks with a move back above monthly support.
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