After an impressive run higher to kick off the month of September, stocks are stalling at significant overhead resistance.
This comes as various technical indicators have moved into overbought territory. While I still expect September to end the month in positive territory, shares are due for a pullback.
Investors are being bothered by fresh concerns over the health of Europe’s banks ahead of the unveiling of new, more stringent capital requirements next week. It’s almost funny how negative headlines seem to appear out of the ether when the charts suggest sentiment has reached a bullish extreme.
Whatever the cause, investors are moving into safe haven currencies like the Japanese yen and U.S. dollar and selling the euro — which is putting pressure on commodities and risk assets in general.
Indeed, copper, which has been acting as a leading indicator for the broad market lately, is down 2.7% over the last few days.
The dollar is up about 5% against the euro over the same period. Another indicator of risk appetites, emerging market equities, has been demonstrating some relative weakness compared to the S&P 500 over the last two weeks. The overall picture is one of increasing caution.
From a technical perspective, you can see how the S&P 500 has turned around today after making an attempt to break through resistance from both its post-April downtrend as well as its 100-day moving average. Both levels combined to foil the stock market back in early August — and they’re doing it again now. The 100-day average on its own turned the market lower in June. You can also see how the 14-day stochastic, shown in the lower chart pane, is now overbought.
The other major indices are also facing stiff headwinds. The Dow Jones Industrial Average is fighting against resistance from its mid-June highs — represented by the heavy volume-by-price bar shown in the chart above. Similarly, both the Russell 2000 and the Nasdaq Composite are petering out near their early July reaction highs.
The nature of the decline, will determine whether this is a buying opportunity ahead of continued gains; or whether it presages something much worse. One bright spot amid the new darkness continues to be U.S. financial stocks. The Financial Select SPDR (NYSE: XLF) has enjoyed significant relative strength against the S&P 500 since late August as buyers swoop into stocks like Bank of America (NYSE: BAC) and JPMorgan (NYSE: JPM). Once the current selling pressure has been relieved, I’ll be scouring bank stocks as a way to play the inevitable rebound. Stay tuned.
As of this writing, Anthony Mirhaydari does not own a position in any of the stocks named here. Be sure to check out Anthony’s new investment advisory service,
the Edge, which is launching in September. He can be contacted at anthony.mirhaydari@live.com. Feel free to comment below.
#1 ETF to Own Now. Louis Navellier’s new profit guide reveals the hottest ETF to buy now, plus details his breakthrough new strategy designed to help you lock in short-term gains from ETFs in sectors just heating up, and then when those sectors are on fire, grab money-doubling profits from the fastest-moving individual stocks. Get your FREE copy here!
