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S&P 500 Slowing, But Still Going Upward

A mild correction may or may not be in the works for the S&P 500

   

EDITOR’S NOTE: Our Chief Technical Analyst Sam Collins is retiring on June 1. Your Daily Trader’s Alert emails will continue uninterrupted, but will feature new analysts going forward. To learn more about the changes click here, and to join our “online going-away party” and wish Sam farewell click here.

On Tuesday, stocks began a shortened week lower prompted by a decline in banks and oil stocks.

Although trading within the major indices was confined to a narrow range, with all of the major indices slightly in the red, the energy sector was responsible for the declines, falling 1.1% with financials also negative at -0.6%. Seven of the eleven sectors in the S&P 500 closed lower.

Amazon.com, Inc. (NASDAQ:AMZN) gained 92 cents, breaching $1,000 for the first time. But the intraday high didn’t hold, and the stock closed at $996.70.

Crude oil (WTI) for July delivery fell 0.3% to settle at $49.66 per barrel.

Today, investors will focus on the Federal Reserve’s May Beige Book at 2:00 p.m. eastern, preceded by April Pending Home Sales at 10 a.m. eastern.

At the close, the Dow Jones Industrial Average fell 51 points, closing at 21,029, the S&P 500 lost 3 points at 2,413, the Nasdaq fell 7 to close at 6,203, and the Russell 2000 lost 11 at 1,371. The NYSE’s primary exchange traded 770 million share with total volume of 3.2 billion shares, and the Nasdaq crossed 1.7 billion shares. On the Big Board, decliners outpaced advancers by 1.6-to-1, and on the Nasdaq, decliners led by 1.9-to-1. Blocks on the NYSE increased to 6,525 from 5,987 on Friday.


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S&P 500's Technicals Show Bullishness Is Still a Go

Low volume characterized the failure of the small-caps, as represented by the iShares Russell 2000 Index (ETF) (NYSEARCA:IWM), to hold above the 50-day moving average. However, we had a hint of near-term trouble ahead when the index plunged through support at 139, and then gapped through the 50-day moving average, failing to recover the blue line three days ago. The next support for the IWM is the reversal (CBR — red dot) at about 134. Thus, the sideways trading range of 134 to 139 has been affirmed and will likely last through the summer.


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Despite the near-term warnings of the IWM, our trusty 17-month chart shows that the spread between that moving average and the current close has widened to 10.6% from 10.4% in April. But is the S&P 500 so oversold that a serious decline is inevitable?

Conclusion: Our charts of the various indices indicate that a near-term triple top has formed. However, the longer-term technical outlook is still solid though slightly overbought. Traders and investors should use weakness this summer to add to or establish new positions in stocks that have been solid performers.

“Bull markets are born on pessimism, grow on skepticism, mature on optimism and they die on euphoria.” John Templeton, as quoted yesterday by Lee Cooperman on CNBC. He went on to say that there are very few current signs of euphoria. Going back to the 2000, when I first started writing the DTA, P/E ratios on many technology stocks were over 200X earnings, but now average only about 20X (+) on forward earnings. A mild 5% to 8% correction may be in the wings, but I don’t see a crash or even a serious correction coming — just more of the same low-volume, narrow trading through September.

As you know, dear reader, this is my final DTA. For 17 years I’ve tried to provide daily objective technical analysis, and you have responded with over 275 supportive words of encouragement as I head into retirement. I am overwhelmed and humbled by the personal touch of so many from places around the globe. May God bless you with riches that only He can provide.

Your friend,

Sam

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.

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