Serge Berger is the head trader and investment strategist for The Steady Trader. Sign up for his free weekly newsletter.
The week closed on a weak note with all of the majorU.S.equity indices down by more than 1.5%. Also disturbing was the fact that, in terms of price action, there is no sign of buyers entering the market.
On Friday, stocks closed near the lows of the session for the second day in a row. True, Friday also had options expiration to contend with, so price action may have been a little skewed. On the New York Stock Exchange, declining stocks outweighed advancing stocks by more than 4 to 1 on fairly heavy volume.
I have been focusing solely on the S&P 500 out of all the majorU.S.equity indices lately because they all look very similar at the moment. On the daily chart of the S&P 500, note that on Friday, it only closed a few points above the closing low from the week prior. At this stage, given the weak trading days from Thursday and Friday, it looks likely we have somewhat lower to go (maybe even just intraday) before any oversold bounce can resurface.
I still see the 1,040 area as a likely downside target, but that target doesn’t necessarily have to be met on this leg lower — it may be reached after a bounce.
Technology was again the weakest of the sector bunch, with the financials right behind it. As such, the charts of most cyclical sectors look very much like the above chart of the S&P 500.
The best looking sector chart is that of the utilities as measured by the Utilities Select Sector SPDR (NYSE:XLU), which last week closed in the green and well off the lows from the week prior. That, however, should not be all that surprising given the defensive nature of the utilities sector.
Speaking of risk aversion, here is a chart of the SPDR Gold Trust (NYSE:GLD) and the iShares Barclays 20+ Year Treasury Bond Fund (NYSE:TLT) dating back to the beginning of May, and showing the massive rally in this safe haven.
Many charts remain oversold and are coming into longer-term support levels on their weekly charts. The semiconductor complex as measured by the Semiconductor HOLDRs (NYSE:SMH) is a good example of that. On its weekly chart, it is coming into a large basing area from back in 2010.
We remain in a tricky spot here. While oversold levels could lead to a swift and sharp rally into the 1,250 area on the S&P 500 at any moment, it is just as likely that we first drop below the 1,100 level to scare out some more longs. Either way, risk management is of great importance here, and this is no time to try to be a hero.
