Good day! June is historically a difficult month for the bulls, ending flat or in negative territory approximately 3 times out of 4 and so far this month it's right on track to keep that statistic alive. After barreling into June in free fall mode, the selloff has diminished in pace over the past week, but morning gains have been consistently eroded away by the closing bell. Despite another attempt to recover losses on Tuesday, late-day selling once again took its toll on the markets. This time, Fed Chairman Ben Bernanke added fuel to the fire with comments shortly prior to the closing bell.
Dow Jones Industrial Average (Figure 1)
A number of analysts have been speculating on the Fed's next move given the onslaught of poor data in recent months. The economy is simply not recovering at a pace that offers much comfort to the average U.S. citizen hit with high unemployment and a disastrous housing market that is expected to continue to slip as the year wears on. Bernanke's reminder that QE2 (the $600 billion federal stimulus package) will run out this month and his comments regarding economic stabilization and anticipated growth quickly dashed hopes for further intervention and Tuesday's afternoon selloff quickly gained momentum. The selloff on the 60-minute charts, however, is becoming extreme, so use substantially greater caution on the short side for positions based on time frames greater than 5 minute once we get into Wednesday's session.
S&P 500 (Figure 2)
The Dow Jones Industrial Average ($DJI) ended the day with a loss of 19.15 points, or 0.16%, and closed at 12,070.81 on Tuesday. Fifteen of the Dow's thirty index components posted a gain. The top performers were Intel (INTC) (+1.05%), DuPont (DD) (+0.88%), McDonalds (MCD) (+0.55%), and Alcoa (AA) (+0.51%). The weakest performers were Cisco (CSCO) (-3.00%), Bank of America (BAC) (-1.66%), Hewlett-Packard (HPQ) (-1.08%), and Johnson & Johnson (JNJ) (-0.83%).
The S&P 500 ($SPX) loss of 1.23 points, or 0.1%, and closed at 1,284.94. The strongest percentage performers in the S&P 500 were Weyerhaeuser Co. (WY) (+5.02%), F5 Networks Inc. (FFIV) (+4.62%), Cablevision Sys. Corp. (CVC) (+4.48%), and Sunoco Inc. (SUN) (+4.01%). The weakest were Avery Dennison Corp. (AVY) (-3.75%), Wynn Resorts (WYNN) (-3.69%), Radioshack Corp. (RSH) (-2.51%), and Best Buy (BBY) (-3.18%).
Nasdaq Composite (Figure 3)
The Nasdaq Composite ($COMPX) ended the session lower by 1.00 point, or 0.04%, on Tuesday and it closed at 2,701.56. The strongest performers in the Nasdaq-100 were F5 Networks (FFIV) (+4.62%), Warner Chilcott (WCRX) (+2.25%), Dollar Tree (DLTR) (+1.92%), and Whole Foods (WFM) (+1.86%). The weakest were Wynn Resorts (WYNN) (-3.69%), Cisco Systems (CSCO) (-3.00%), Research In Motion (RIMM) (-2.80%), and Green Mountain Coffee (GMCR) (-2.09%).
Although oil, silver, and gold have all been hot commodities in recent months, since early May we've been seeing primarily a period of congestion. This goes along with our expectations near the beginning of May that we would not see any type of strong or sustainable recovery from the plunge these commodities took in late-April and into the beginning of May. There is currently no strong indication that the selloff will continue anytime soon since the weekly drop was substantially larger-than-average.
This type of selling on the weekly time frame generally means that periods of congestion will tend to be longer-than-average and even eventual price recoveries versus downside continuation patterns are more common. Continuation patterns, when they occur, are also typically slower than the initial descent. So, for the time being, expect more of the same type of action in commodities as we've seen over the past month and place greater value on intraday strategies than longer-term ones.
Unless otherwise stated, the index action described in this article relates to the E-mini futures contracts for the respective indices. Actual index action may differ slightly in terms of pattern formation, although the market bias will remain the same.
Toni Hansen is president and co-founder of the Bastiat Group Inc., DBA Trading From Main Street. Toni is one of the most respected technical analysts and traders in the industry. She has been trading and educating new traders, money managers, professional market analysts and traders throughout the boom and bust of the last decade. She has worked in conjunction with some of the world's top financial exchanges. Learn more about Toni Hansen and the educational services she provides through her website at http://www.tonihansen.com.