U.S. stock markets headed south Thursday without any help from Europe’s debt problems. According to ADP and Macroeconomic Advisers, the economy added fewer-than-expected private-sector jobs in May, and manufacturing data in the Chicago region fell more than expected.
Stocks initially headed lower on the poor economic numbers, but reversed course mid-morning, and 20 minutes before the close the Dow was up almost 70 points. However, in a flash, sell programs with large blocks of stock hit the exchanges, and by the close, the gains had vanished.
At the close, the Dow Jones Industrial Average was off 26 points at 12,393, the S&P 500 was down 3 points at 1,310, and the Nasdaq was down 26 points at 2,827. Volume on the NYSE totaled 1.3 billion shares, and the Nasdaq traded 757 million shares. Advancers and decliners were even on the NYSE, but there were 1.1-to-1 more decliners on the Nasdaq.
The CBOE Volatility Index (VIX) measures the market expectations of near-term volatility conveyed by the put/call balance of the S&P 500 index. It is often referred to as the “fear gauge.” It measures the market’s expectations of 30-day volatility, and when it has a big percentage move up in a month it is warning of lower stock prices.
In May, the VIX had a 37.7% run up from its April close. That’s a huge one-month move for the VIX, and coupled with its break above its 200-day moving average, tells us that those who follow this indicator will be heavy sellers in June.
I’ve pointed out the small flag on the daily chart of the S&P 500 several times, warning that upward pointing flags are bear signals, and so usually break down. This may have happened yesterday, and would be confirmed if the S&P 500 closes below the support line at 1,293. Note another bearish signal: Yesterday the stochastic issued a sell signal.
Finally, I post the long-term chart of the S&P 500 with its 17-month moving average on the last day of each month. This very simple but highly visual chart has accurately signaled changes in trend. When the black monthly line crosses through the red 17-month moving average it produces a signal. The black price line is very close to breaking the red line for a sell signal — another warning of a dangerous bear ready to pounce in June.
Conclusion: All major indicators are telling us to be cautious. Investors and traders alike should sell into rallies and only buy on sell-offs of 10% or more from current prices. The minimum target on a breakdown of the support zone at 1,264 to 1,293 is 1,200.
Today’s Trading Landscape
To see a list of the companies reporting earnings today, click here.
For a list of this week’s economic reports due out, click here.
