Yesterday, concerns over possible funding problems for a euro-fund of 440 billion euros, and more worries over sovereign debt contagion to Portugal and Spain, kept the markets in a narrow trading band for the entire session.
And an old concern about China got the attention of traders following a release of monetary data that showed that Chinese consumer and producer prices increased at a faster-than-expected pace in April.
New OptionsZone.com Coming Soon!
The news from China also included an increase in property prices of 12.8% in April, despite recent tightening measures. This is evidence of possible serious inflation going on in the Chinese economy and it led to fear that further tightening by the Chinese Central Bank could impact global growth.
Stocks opened lower, but by mid-morning, the Dow Jones Industrial Average (DJI) had made up the early losses and began moving higher. By 2 p.m., stocks were up almost 90 points, but the gains were quickly erased, and within an hour the Dow was in minus territory again. There was little news to account for the pullback except that commodities, other than gold, sold lower.
The U.S. dollar rose again, and Treasuries also gained taking the yield on the 10-year note down to 3.54%.
At the close, the Dow was down 37 points to 10,748, the S&P 500 (SPX) fell 4 points to 1,156, and the Nasdaq (NASD) rose a fraction to 2,375.
The NYSE traded 1.5 billion shares with advancers ahead by 7-to-6. The Nasdaq crossed 700 million shares with advancers ahead by 8-to-5.
June crude oil fell 43 cents, closing at $76.37 a barrel, and the the Energy Select Sector SPDR (NYSE: XLE) fell 38 cents, closing at $56.96.
Gold set an all-time high yesterday, taking the May contract to $1,233.50 an ounce, up $19.50, as global market concerns sent investors fleeing to the safety of gold. The PHLX Gold/Silver Sector Index (NASDAQ: XAU) rose 7.57 points to 184.25.
What the Markets Are Saying
Despite Monday’s big pop of more than 400 Dow points, there was a distinct lack of follow-through yesterday at just under the 50-day moving averages of the major indices. This demonstrates a lack of confidence and even nurtures the suspicion that Monday’s gains were mostly due to short covering and little else.
Volume was relatively heavy on the NYSE at 1.5 billion shares with most of that accumulated on the selling side by a ratio of 1.4-to-1.
The CBOE Volatility Index (VIX) fell a half point yesterday, taking it to 28.32. Because the VIX is not at the lofty levels of last week, which now appears to be an anomaly, some technicians are taking this as a bullish event, but in comparison with last year, that reasoning just doesn’t add up since a reading of 28-plus puts the index close to the highs of last year.
There is still no reasonable explanation from the Street as to the wild selling on Thursday. Perhaps we will never know the reason for the bottom falling out of the market in a 15-minute glitch. But because of that event, our internal indicators are virtually worthless with numbers indicating that the markets are grossly oversold. In order to correct that error, I believe that we should go back to Wednesday when virtually all of the internal indicators were slightly oversold.
So, with a three-day bounce from the 200-day moving average, the bulls have taken prices back up to the breakdown point, the 50-day moving average. We’ve seen this sort of price action many times before, both from upside and downside breaks when prices retract from an extreme break only to resume the trend in the same direction of the break.
Conclusion: We are in the final moments of a dead-cat bounce. Since the most significant resistance to the rally from the 200-day moving average is the 50-day moving average, in the absence of a high-volume close over the 50-day, this rally appears doomed.
Stay in cash or short.
Today’s Trading Landscape
Earnings to be reported before the opening include: Cache, China Education Alliance, Duoyuan Global Water, Helen of Troy, Kelly Services, Macy’s and Stealthgas.
Earnings to be reported after the close include: Aegean Marine Petroleum, Apollo Commercial Real Estate, AuthenTec, Cisco Systems, Cloud Peak Energy, CPI International, DryShips, Jack in the Box, PSS World Medical, Silver Wheaton, Spartan Stores, Stanley Furniture, Supertex, URS and Whole Foods Markets Inc.
Economic reports due: MBA purchase applications, international trade (the consensus expects -$41 billion), EIA petroleum status report, Treasury budget (the consensus expects -$40 billion).
Related Articles:
The 10-to-1 Options Trading Secret
John Lansing reveals how to break down scientific chart analysis into easy-to-make trades that will have you trading, and profiting, with confidence in no time. Learn how to leverage your profits 10 times larger with a tiny investment. Download his FREE trading guide here.
