Stocks inched forward yesterday after Alcoa’s (AA) loss that was not nearly so bad as expected. But the June retail sales report was worse than expected, resulting in the 10th straight month of declines. Strangely, the sales report seemed to cap any gains in the broad market despite a modest advance in the retail group, which rose 0.4%.
Financial stocks rebounded after heavy losses earlier in the week. The group gained 1.4%, but much of that was due to an upgrade of Goldman Sachs (GS) by Bank of America/Merrill Lynch (BAC), whose analyst raised the price target of its stock to $175.
Semiconductor stocks also showed gains, but that didn’t seem to have much impact on the broad market, either. The Semiconductor Index (SOX) rose 2.8%.
Jobless claims increased again–this time to a new record of 6.88 million–and it was primarily that news that kept the market at bay.
At the close the Dow Jones Industrial Average was up 5 points to 8,183, the S&P 500 gained 3 points to 883, and Nasdaq rose 5 to 1,753. The NYSE traded just over 1 billion shares with advancers ahead by 9-to-5, while on Nasdaq 614 million shares traded with advancers and decliners even.
August Crude Oil gained 27 cents after six-straight declines and closed at $60.41 a barrel. The Amex Energy SPDR (XLE) closed at $44.99, up 46 cents. And August Gold gained, too, up $6.90 to $916.20 an ounce as another day of a weak dollar added glitter to the metal. The PHLX Gold/Silver Index (XAU) closed at $130.29, up 99 cents.
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What the Markets Are Saying
A Review:
Tuesday’s drive through the neckline support of the S&P 500 at 888 is confirmation that the Head & Shoulders has been penetrated and that the near-term trend of the market is down.
Volume on the breakdown was low, and this fits the pattern of the vast majority of established SHS patterns. Volume is usually low on the days of the break and then builds as the bull’s sell stops are triggered.
This has yet to happen, but when it does look for a short-term selling climax to occur with volume taking a sudden spurt — this is the signal that the first phase of the breakdown is over. If you are short, that is the time to cover. Repeat: The selling climax has not yet occurred and so if you are short, stay short.
The selling climax is usually followed by a “dead-cat bounce” that often takes prices back up to the old neckline, which now acts as a resistance line. And the bounce may even be accompanied by high volume that deceives the bulls, luring them into a “bull-trap.” But patient traders will take their biggest and most rewarding short positions at, or even above, the old neckline since high-volume selling then turns stocks down to their ultimate short-term objective. On Monday, I provided the following breakdown objective: “S&P ‘500’ is 820.”
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Yesterday: That puny rally is not the “dead-cat” that we are looking for. But stocks are somewhat oversold and the mixed advance on low volume could carry the averages back to the neckline at 888 but not much farther.
Wednesday’s decline reached an intraday low of 869 and that’s close enough to 861, the 3% decline which many analysts say must happen to confirm a genuine SHS breakdown. With that in mind, look for the current mini-advance to fail and then break Wednesday’s intraday low with a pick-up in selling volume.
Sellers should take advantage of rallies to lighten up and short sellers to take new positions. The near-term trend is down. The intermediate trend is down and the long-term trend is up.
Today’s Trading Landscape
Earnings to be reported include: Audiovox Corp (VOXX), CanWest Global Communications Corp (CGS:CA), Infosys Technologies Ltd (INFY), Mechel OAO (MTL), Penford (PENX), and PriceSmart (PSMT).
Economic reports due: May Trade Balance (the consensus expects -$30.0B), June Import prices (the consensus expects +1.9%), Mid-July Reuters/Univ Michigan Sentiment Index
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Sam Collins is a registered, fee-based portfolio manager who may be contacted at samailc@cox.net. You can also check out an archive of his most recent market outlooks.
