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Courtesy of Scott Martindale, Senior Managing Director, Sabrient
The leading sectors on strong days were the leaders to the downside today: Materials, Energy, Financial, Technology, Industrial. All down about 2% or more. Volume was much greater in today’s weakness than we have seen since the March 16 selloff. The dollar was up +1.6% today while the overall market was down about the same amount. Clearly, stocks have benefited from a weak dollar, and today’s unusual strength in the greenback (due to a big increase in core CPI and unrest in Greece) was like a death knell for the bulls.
Each encouraging bounce is being met with selling – either late in the day or the following day. This is the behavior of hesitant bulls who are trying to anticipate a sustained reversal, but they can’t get traction without some leadership. The big cap Technology names are not providing it, and the Healthcare sector is not an acceptable substitute.
Tuesday was so promising, as stocks had their strongest day in almost two months. But today was an entirely different story. The market hit a new 3-month low, and the SPY has pulled back about 8% from its May high. It is also getting very close to testing important support at its 200-day moving average. A temporary breach wouldn’t be the end of the world – and a full 10% correction from the high actually might be healthy – but it would need to recover the 200-day quickly or risk having it become strong overhead resistance throughout the rest of the summer.
High volume today is less than the March 16 selloff, but still much higher than any other day since then. This might bode well for a washout of weak holders, which would enable the bulls to build a foundation. RSI and MACD are still severely oversold, which should lead to a more robust attempt to bounce, and price typically sets its sights on the upper Bollinger Band after sitting on the lower band for this long. The bands are quite spread apart, and due for a reversion. But Technology and Financials will have to firm up and become leaders again if the bulls are going to get something more significant than a brief bounce.
The TED spread (i.e., indicator of credit risk…
