Editor’s note: Serge Berger, the head trader and investment strategist for The Steady Trader, will be providing the Daily Market Outlook until Sam Collins returns on June 27.
In yesterday’s Daily Market Outlook, I discussed that given the lack of confidence in Tuesday’s rally, the market would likely test lower levels, and lower levels we tested.
The chart of the SPDR S&P 500 (NYSE: SPY) shows the lower low and the significant increase in volume as compared to Tuesday’s feeble bounce attempt. Overall, yesterday’s market action was certainly weak, but in my opinion, a real volume spike is still needed for a capitulatory low to be found.
The VIX, too, made a nice jump higher yesterday, but remains far from the March levels. I’m not advocating that we need to see a spike all the way to the March highs in order to find a near-term bottom in equities, but what we’ve seen thus far just doesn’t seem quite dramatic enough.
Yesterday, I highlighted Tuesday’s weak rally in the financials. I was skeptical of the Financial Select Sector SPDR (NYSE: XLF) trading back above $15, because major banks closed in the red for the day on Tuesday. In other words, they did not display enough strength to lead higher. That skepticism proved to be warranted, as yesterday, the financials, along with energy and materials, led the way lower, and the XLF closed back below the crucial $15 level.
Oil via the United States Oil Fund (NYSE: USO) was also weak all day yesterday, and closed 4% lower out of the bearish flag and below the 200-day simple moving average (red line). Purely from a technical point of view, oil should now continue trading lower. The thing about oil is that lower prices could be perceived as positive for the consumer. But what if lower oil prices are a result of less demand, foreshadowing an economic slowdown?
The U.S. dollar, meanwhile, had its day in the sun yesterday, confirming a higher low and forcefully moving above its 50-day simple moving average (yellow line). A higher dollar remains a negative for equities until we get signs of a reversal of that correlation.
With a quadruple witching options expiration coming on Friday, it would not be surprising to see major equity indices pierce their 200-day simple moving averages to the downside and result in that much-needed volume and fear spike.
Speaking of fear, last week, the CBOE put/call ratio rose to its highest level in 2.5 years, a telling sign that a bottom may not be far off — although that one last flush lower may be needed.
For one undervalued stock to buy, see the Trade of the Day.
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.
