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This Election Year is Affecting the Markets and Creating Opportunity. Get Your Complimentary Report.

This NEW RJO Futures report, How the '08 U.S. Presidential Election Affects the Markets, provides a breakdown of the current situation -- with an in-depth look at the housing sector, the employment situation, gross domestic product and more. Its comprehensive charts and analysis make this report valuable for any trader in these unpredictable times.

Get Your Report Now!

The market continues to prove that we are truly in a transition period, as the sideways action continues in several markets. Many traders and analysts believe that we have bottomed in the stock market. Surprisingly, the market managed to forge through the 140250 key resistance level and the long-term trend channel broke to the upside on the S&P 500. Although I have been hearing several analysts claim that the bottom is in, it is also believed that it will take time for the market to correct and find increased upside momentum. In other words, continued volatility is expected. We still need to see improvements in housing, sales, employment, and business growth to confirm that we are not in a recession or going into a recession.

At this point, the U.S. has not officially been in a recession, because we have not experienced a period of negative gross domestic product (GDP) growth. The first quarter GDP indicated that we had +.6% growth. However, many analysts argue that we have been in a minor recession, because the trend has been for declining growth over the past year. Due to the fact that this is an election year, the odds are favorable that we will not move into a recession (by definition). After the presidential election and going into next year will be the true test though!

Last week, the highly anticipated monthly non-farm payrolls report and Federal Open Market Committee (FOMC) meeting took place. Since the FOMC meeting took place earlier in the week, I will discuss this first. The Fed cut the discount and Fed Funds rates by 25 basis points, as expected. There were two voting members that dissented from voting for the 25 basis point Fed Funds rate cut, due to increased inflationary concerns. The market reacted with mixed emotion because of the post-meeting comments. The comments left much more concern for the housing market and credit crunch than what the market initially thought, causing the interest rate markets to rally after the comments were made. This mixed attitude in the market carried over to the unemployment situation last week. The weekly jobless claims came out higher than expected at 380,000 claims versus 360,000 expected, leaving the market anticipating the worst for the monthly unemployment report. The monthly unemployment report came out much better than expected at a decline of 20,000 jobs versus an expected decline of 75,000 jobs. The good news is that the report came out much better than expected. The bad news is that the report came out with a declining jobs number.

In the midst of the financial crisis, Federal Reserve Chairman Ben Bernanke made comments that he expected inflation to cool as economic growth declined. However, global demand for physical commodities continues to remain high, even though domestic demand for goods and services is waning. Mining issues seem to be extreme around the world, causing the prices for goods such as copper to remain high. The crude oil market continues to make new contract highs as well, due to political turmoil and supply disruptions. The high energy and input prices could be the factor that limits a potential rally in the stock market. The price action in the energy markets is very concerning. We have seen higher prices as the dollar is rallying and supplies are increasing. What will cause the market to stabilize? Will the upcoming presidential election in November pressure crude prices as the year goes by?

Finally, the primary factor that is expected to contain any upside momentum in the stock market is the housing market. As home values decline, the household percent of debt relative to assets increases -- creating more economic growth pressure. This decline in assets is further increasing the risks that lending institutions face, as a result of many high-risk loans given in recent years -- which is also increasing the risk that the number of foreclosures will continue to rise. Bernanke made comments late Monday, indicating that current foreclosure policies may not be adequate in today's environment. The issues that have faced sub-prime borrowers are spilling over to prime borrowers as well. The housing market issues clearly do not support the argument for a robust economy. On the bright side, as the home values decline, more people will likely be able to afford to buy.

Technical Update for June E-mini S&P:
Near-Term Trend: Higher
Long-Term Trend: Sideways - Higher
Support: 138500, 132575
Resistance: 142500, 142950

The longer-term trend is pointing higher, since breaking out above the 140250 level last week. However, many markets seem to remain trading in a tug of war between growth and inflation. The increased inflationary pressures are supporting longer-term yields, and in turn could pressure the stock indexes and corporate profitability. I want to be a buyer on breaks in the stock indexes, but if the market breaks the 138300 area basis the June e-mini S&P, the near-term trend would turn lower and likely trigger short-term sell signals.

If you cannot view the S&P 500 chart, go here.

Donna Heidkamp is a Senior Trading Advisor at RJO Futures. Her interest in the futures industry stems from strong family ties to production agriculture in Hereford, Texas. After completing a bachelor's degree in Agricultural Economics at Texas Tech University in 1995, Donna moved to Chicago to participate in the Chicago Mercantile Exchange Agricultural Broker Training Program. The program exposed her to all facets of the futures industry, enabling her to work with experienced floor traders and develop a strong understanding of the intricacies of trading in the futures markets.

Since completing the training program in 1995, Donna has continued to gain a well-rounded knowledge of the industry by working as an order clerk, trading desk manager, and broker for RJO Futures. In 2004, she started a branch office of RJO Futures to focus her efforts on helping clients meet their trading goals. By identifying client objectives, managing risk, and providing a carefully tailored service, Donna serves as a dedicated liaison on all trading floors to full-service, broker assist, and on-line clients. Donna's commentary can also be heard regularly on CNBC TV and Bloomberg.

In order to continue to better serve her customers in an ever-evolving and dynamic industry, she also completed a M.S. degree in Financial Markets and Trading from the Illinois Institute of Technology in May of 1999.

RJO Futures is the retail division of R.J. O'Brien, one of the oldest FCMs tracing its history back to 1914.

This Election Year is Affecting the Markets and Creating Opportunity. Get Your Complimentary Report.

This NEW RJO Futures report, How the '08 U.S. Presidential Election Affects the Markets, provides a breakdown of the current situation -- with an in-depth look at the housing sector, the employment situation, gross domestic product and more. Its comprehensive charts and analysis make this report valuable for any trader in these unpredictable times.

Get Your Report Now!