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Stocks groaned and moaned and huffed and puffed on Monday, but ultimately curled up on the floor like a tired old dog and took a nap. Trading volume was among the lowest of the year, and sentiment was pretty flat.
U.S. Treasurys were stronger across the board, however, as was the dollar. Both were a problem for gold (which fell 2.2%) and crude oil (which sank 3.2%). Commodity weakness was, in fact, the biggest story in an almost news-free session, with most of the blame going to that convenient villain, China.
The commodity rout led to heavy selling for miners and energy producers, as well as mining machinery makers. The reason this time was word that China was trying to crack down on speculative excesses in commodity trading. The Dalian commodity exchange, for instance, stated that it would strengthen its market monitoring and might increase transaction fees in order to curtail speculation. Concern that Beijing will reduce monetary and fiscal policy support combined with softer-than-expected April trade data to keep materials stocks reeling.
Looking at the broader U.S. equity market, I felt it would be helpful to check in again on the rounding top pattern. Bulls pushed the market benchmark up out of the rounded top in mid-April…then were pushed back by bears at the 2,100 level. Bears are now going to try to push the market back down.
Last week, we talked about whether it actually made sense to dump stocks based on an axiomatic Wall Street rhyme — “sell in May and go away” — and determined that the idea actually has some merit. While stocks don’t necessarily go down much from May to October, they also don’t go up much. It’s kind of a long dead zone on the calendar. My expectation is that financials will suffer for the next couple of weeks at least, so I will be looking for some short-sell or put opportunities.
One play I am bullish on right now is the major industrial conglomerate, Eaton (ETN). Shares have stalled in the $60–$64 area recently but show signs of bounding out of a small inverse head-and-shoulders technical pattern.
Buy ETN at around $62.25 or less.
Jon Markman operates the investment firm Markman Capital Insights. He also offers a daily trading advisory service, Trader’s Advantage, and CounterPoint Options, a service that helps individual traders make steady, consistent profits with volatility-related instruments.