After four days of declines, most market watchers expected a relief rally on Friday. And when a finalized version of a financial reform bill was agreed upon by the Senate and House, a rally was sparked.

Bank stocks and related financial stocks surged on the news. Diversified financial services gained 3.4%, investment banks and brokerages gained 3.1%, and specialized financials were up 3.4%. Overall, the financial sector gained 2.8%. American Express Company (NYSE: AXP) gained 3.7%, and Bank of America Corporation (NYSE: BAC) rose 2.7%.

But just two hours after the long-awaited deal, the market sagged even though the financials held their ground. And by the close, only a handful of sectors had retained the gains made earlier. 

Small caps in the Russell 2000 (RUT) jumped 1.9%, and the materials sector, led by gold and silver stocks, held its gains. Newmont Mining Corporation (NYSE: NEM) rose 4.61%, and Freeport-McMoRan Copper & Gold Inc. (NYSE: FCX) gained 4.93%. ASA Limited (NYSE: ASA) rose 3.25%, and Gabelli Global Gold, Natural Resources &Income Trust (AMEX: GGN) gained 1.82%.

Volume was high as adjustments were made to match a rebalancing of the Russell indices, which will begin trading today. 

The final GDP reading for Q1 showed that the economy grew at a rate of 2.7%, which was slower than expected. Personal consumption growth increased, but at a rate of 3%, just missing estimates.

The final consumer sentiment survey for June showed an improvement to 76 for the best reading since January 2008. However, none of the economic reports appeared to impact the day’s trading results.

The U.S. dollar fell versus the euro and the yen. 

At the close the Dow Jones Industrial Average (DJI) was down 9 points to 10,144, the S&P 500 (SPX) gained 3 points at 1,077, and the Nasdaq (NASD) rose 6 points to 2,223.

The NYSE traded 2.6 billion shares with advancers ahead of decliners by almost 3-to-1. The Nasdaq crossed 1.7 billion shares, and advancers there were ahead by just over 2-to-1.

Crude Oil for August delivery rose $2.35 to $78.86 a barrel on fear of a developing storm system in the Gulf of Mexico. The weather system (Alex) could develop into the first hurricane of the season. The Energy Select Sector SPDR (NYSE: XLE) closed at $52.49, up 15 cents. 

August gold rose $10.30 to settle at $1,256.20 an ounce, and the PHLX Gold/Silver Sector Index (NASDAQ: XAU) rose 6.45 points to 185.12.

What the Markets Are Saying

On Monday, June 21, stocks advanced early following a report that China would allow its currency to float more freely — a potentially good piece of news. Buyers launched a brief attack on the 50-day moving averages, but by late afternoon, all of the early gains were lost and the day closed on a most disturbing note — a daily reversal down. The negative impact of such a decline and reversal on good news could not have been worse.

What followed were four days down, with Friday ending in a draw. Friday’s struggle was almost as significant as Monday’s decline in that the financials were ignited by the relief of the announced agreement to finally get a financial regulation bill going. But instead of the rally broadening, it remained confined to just the financial and financial services groups, and the bulls had to suffer another in a string of technical disappointments. 

With the major indices now below their respective 200-day moving averages, there has been significant technical damage to the market. We could get a “dead cat bounce” early in the week, but with the long Independence Day weekend ahead and some formidable resistance above, it is unlikely that any major gains will be made this week.

As for the resistance, rallies will most likely be contained by the conjunction of a falling 50-day moving average and a rising 200-day moving average for each index. The market is now in a short- and intermediate-term decline, and the long-term trend is in doubt.  If the indices close below the important February to May/June lows, then look out below.

Today’s Trading Landscape

Earnings to be reported after the close include: Barnes & Noble, Micron and SMSC.

Economic report due: personal income and outlays (the consensus expects 0.5% for personal income, 0.2% for consumer spending).

If you have questions or comments for Sam Collins, please e-mail him at samailc@cox.net.

The Secret to Money-Doubling Trades They Don’t Want You to Know
Professional traders Nick Atkeson and Andrew Houghton reveal their proven, time-tested strategy to finding money-doubling trades in a new report. It’s the trading “secret” so effective they were banned from sharing it with you. Download your FREE copy here.