The market remains within its fourth week of correction, versus the May 22nd top. Much like last week a very sharp rally led to little momentum and stocks stalled today at the top of the descending channel we have been following on the major indexes. There just is no momentum from day to day, and volatility remains high. The S&P 500 fell 0.59% and NASDAQ 0.63%. For the week the S&P 500 fell 1.01% and the NASDAQ 1.32%. Consumer sentiment retreated to 82.7 in June after hitting its highest in nearly six years in May, according to the Thomson Reuters/University of Michigan’s preliminary reading. Next Wednesday we will have the Federal Reserve decision – expected to be unchanged – along with the quarterly press conference which will be impactful to markets considering the only thing people seem to talk about anymore is central bank actions.
The S&P 500 came up to its 20 day moving average and was firmly rejected today. The index has closed below this moving average 14 of the past 16 sessions so it’s an easily observable line in the sand. A close above it for more than one session could help mark a change in tone. But larger picture as we have been saying the past few weeks, until this channel is broken to the upside, one can try to make quick trades in and out within the channel or just sit it out. We never know if these are 3%, 5%, 10%, or 20% type of corrections – in the meantime they tend to wear on the psyche so there is no harm in large cash positions during these periods. And with only 2 more sessions until Wednesday’s Fed announcement and press conference it seems likely we’ll just flop around in this channel until that catalyst hits.
Showing exactly that type of frustrating action, yesterday we mentioned the “hammer” (a large reversal where the index closes near or at highs) that had potentially formed on the emerging markets ETF (EEM). Well…that lasted all of one session.
I do want to point out oil however – it finally broke this 5 month downtrend of lower highs. If this can sustain early next week we might have the potential for the first sustained move up in a long time.
As for precious metals they remain in the same area they have been for many months – no man’s land.
It is very difficult to find long ideas that sustain in this sort of market, but the sort of reversal pattern LinkedIn (LNKD) put in Friday would normally be a very enticing one. We see it broke out of its 6 week descending channel on a big jump in volume; in a healthy market this is an excellent place for an entry (one can stop out of the position if it falls back into the channel as that would mean it is “not ready”). However in this sort of market the chances of this sustaining are not quite so great.