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3 Signs Sellers Should Take Over

There seems to be little chance of this exuberant January rally extending to March


Tuesday, the stock indices were able to open the new week on firmer footing with the S&P 500 and Dow Jones (along with small-/mid-cap) pushing above last week’s highs/range tops in early trade to establish some new yearly highs. The push was extended mid-morning and, after a sideways drift into the afternoon, follow-through interest, even though it was clearly on lighter volume trading, allowed the broader averages to close near the highs.

However, the stronger day will likely be short lived and here are a few reasons why.

Currencies and Commodities Looking Bearish

High-beta currencies are getting hammered, with the New Zealand dollar (CURRENCY:NZD) leading the way down. In fact, this is the biggest decline in a single overnight session we have seen in this currency in 2013, as most of the downside momentum this year has been with the Australian dollar (CURRENCY:AUD) when it comes to these two high-beta currency momentum leaders. Meanwhile, it didn’t take long for traders to note the increased volatility with the Aussie and Kiwi before they went after the Euro (CURRENCY:EUR), although the downside so far this morning in the Euro isn’t as nearly as pronounced as we see with the other two. That is allowing the U.S. dollar (CURRENCY:USD) to trade back to overnight highs, and it appears we will soon see the greenback once again become the flight to quality.

Commodities Struggling Too

With these extremes in currency volatility, the commodity complex is once again back in the spot light as we see gold, silver, palladium, platinum, and copper all making significant declines. Copper, which was hammered Tuesday, has been one of the stronger “rocks” and is seeing follow-through selling after the rather significant decline of 2.32% yesterday, making it one of the strongest down days we have seen thus far in 2013.

As I type this, I’m watching all these currencies and commodities drop to new 2013 year lows in many cases and new six- to eight-month lows in other cases. The broader market futures have all reversed course and are now in the red from the S&P 500, Dow Jones Industrial Average to the small- and mid-cap futures.

Earnings Reports Could Depress Homebuilders

At the current moment, Apple (NASDAQ:AAPL) is catching my eye because of another pre-market decline of 8 handles so far, but this drop could be short lived for today as it always seems news comes out to save the day when that stock approaches the 450 level. So, what is likely going to be the focus for many others is the earnings report that came out of homebuilder Toll Brothers (NYSE:TOL), which missed huge on the top line, as well as 9 cents on the bottom line.

So, weakness in the homebuilder sector with the pre-market decline of TOL, which is off by 5%, means there’s the potential for weakness in homebuilders, including the S&P Homebuilders ETF (NYSE:XHB) and the Dow Jones US Home Construction ETF (NYSE:ITB), along with the following downside candidates: Hovnanian Enterprises (NYSE:HOV), Standard Pacific Corp. (NYSE:SPF) and the Ryland Group (NYSE:RYL).

Some other stocks are traders’ favorites that will likely see an increase in momentum and volatility. One is CF Holdings (NYSE:CF), which reported earnings after the close Tuesday, missing on revenues but beating on the top line.

Traders are also watching HerbaLife (NYSE:HLF), which reported earnings results and is typically the go-to stock for crazy town trades. I try and stay clear of that name unless I am absolutely in the mood for purchasing an E-Ticket to crazy town.

Sellers Should Pick Up Soon

While there are a slew of more earnings reports to yet come out today, 12 of the 14 that reported in the premarket hours have missed both on the top and bottom line. But we have a lot more to go yet, as well as some economic data slated for release today and tomorrow.

With today’s early morning and overnight waterfalls in every other asset class and the pickup in downside momentum in all those areas, I would be surprised if any upside pop this morning wasn’t immediately squelched with sellers moving in. For the rest of the week and into next week, I would expect selling to become increasingly aggressive.

InvestorPlace advisor John Lansing tracks the charts all day and offers expert technical analysis in his day trading, options and trading services: Power Trading at the Open, Parabolic Options and Trending123.  For more information on which service is for you click here

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