Weakness in Asia and Europe led to a weak open on Wall Street, but stocks managed to firm in the first hour and tech stocks led a morning rebound. These gains were holding in the early afternoon, but selling pressure in the final hour pushed stocks sharply lower. Small-caps and mid-caps led the decline. The energy and materials sectors tumbled 4.75% and 3.22%, respectively. The Finance, industrials and utilities sectors were down over 2%. Interestingly, the technology and consumer discretionary held up relatively well. Money moved into defense as the consumer staples sector posted the smallest loss (-.23%). It is also worth noting that all Bullish Percent Indices for the nine sectors remain below their 10-day EMAs. The chart below shows the Consumer Discretionary Bullish% Index ($BPDISC) bouncing back above 50% last week, but still in a short-term downtrend.
Nevertheless, selling pressure was quite broad-based on Tuesday. The AD Line and AD Volume Line for the Nasdaq moved below their May lows. NYSE breadth was also hit hard, but the AD Line and AD Volume Line remain above their late May lows. On the chart below the Nasdaq AD Volume Line needs to break above its late May highs to reverse the short-term downtrend.
SPY failed to hold its breakout at 110 and plunged below 108 on Tuesday. This decline forges a reaction high upon which to base the May trendline and key resistance. Even though cold feet on Friday and Monday's late plunge retract from the bullish argument, SPY remains in a big support zone around 104-107. With a new reaction high, a strong follow through breakout at 110.8 is needed to fully reverse the five week downtrend. Also look for an RSI break above 50 to turn momentum bullish again.
On the 30-minute chart, SPY tested support with an opening gap and the ETF firmed just above support during the day. SPY then broke wedge support with a sharp decline in the final 30 minutes of trading (last bar). Technically, the wedge break reverses the four day uptrend and establishes resistance at 110. SPY has been falling for two days now and a break above 110 is needed to reverse this fall. While yesterday's support break is negative, I should point out potential Fibonacci support in the 107 area. The 26-May low is at 106.85 and this level marks support on the daily chart. RSI failed to hold last week's breakout at 60 and moved back below 50 on Tuesday. Momentum resistance remains in the 50-60 zone.
Key Economic Reports:
Wed - Jun 02 - 10:00 - Pending Home Sales
Wed - Jun 02 - 10:30 - Oil Inventories
Wed - Jun 02 - 14:00 - Auto-Truck Sales
Thu - Jun 03 - 08:15 - ADP Employment Report
Thu - Jun 03 - 08:30 - Initial Claims
Thu - Jun 03 - 10:00 - Factory Orders
Fri - Jun 03 - 10:00 - ISM Services
Fri - Jun 04 - 08:30 - Employment Report
Charts of Interest: AFFX, AMLN, CXW, KMB, WTW
This commentary and charts-of-interest are designed to stimulate thinking. This analysis is not a recommendation to buy, sell, hold or sell short any security (stock ETF or otherwise). We all need to think for ourselves when it comes to trading our own accounts. First, it is the only way to really learn. Second, we are the only ones responsible for our decisions. Think of these charts as food for further analysis. Before making a trade, it is important to have a plan. Plan the trade and trade the plan. Among other things, this includes setting a trigger level, a target area and a stop-loss level. It is also important to plan for three possible price movements: advance, decline or sideways. Have a plan for all three scenarios BEFORE making the trade. Consider possible holding times. And finally, look at overall market conditions and sector/industry performance.
About the author:
Arthur Hill, CMT, is the Chief Technical Strategist at TrendInvestorPro.com. Focusing predominantly on US equities and ETFs, his systematic approach of identifying trend, finding signals within the trend, and setting key price levels has made him an esteemed market technician. Arthur has written articles for numerous financial publications including Barrons and Stocks & Commodities Magazine. In addition to his Chartered Market Technician (CMT) designation, he holds an MBA from the Cass Business School at City University in London.
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