Thanks for your 5,000 visits to this blog. I hope you continue to find it a useful summary of daily and monthly market conditions with an occasional technical study thrown in for added value. I know I find it helpful "self-talk" during the course of the day and have appreciated your kind notes.
This June, the major U.S. equity indices swooned heavily as oil bubbled ever higher and financial sector woes returned to the fore. The S&P 500, Dow Jones Industrials and NASDAQ 100 cash indices recorded monthly losses of -8.60%, -10.19% and -9.62%, respectively; their worst monthly showing in six years.
Indeed, the Dow's 1,288 point drop on cracks in the global growth storey left the index down for three consecutive quarters and in official bear market correction territory (>20%) -- a combined phenomenon not witnessed since the late 1970s.
Interestingly, implied volatility remained relatively moderate even as daily declines, some quite large in magnitude, became the norm. The Federal Reserve's decision to hold key rates level at 2% offered little respite as the inflation warning embedded in its statement took hold. To that end, oil hit record highs exceeding $143 per barrel, up $15 from the start of the month on dollar weakness, supply concerns and growing geopolitical risks seen from Iran and Nigeria.
In related news, the automotive industry took an especially large hit with downgrades on reduced truck and minivan sales. Nevertheless, more than a handful of merger and acquisition announcements were made even as the Yahoo and Microsoft talks failed to bear fruit and not a single Venture Capital-backed deal was brought to market.
Style-Box performance again showed relative strength in the Growth camp, although all areas were very weak. As for sectors, the Financials struggled mightily on downgrade threats and additional write-down worries, while Energy issues posted a moderate gain in the aggregate.
Even a moderate-sized bounce higher would be welcomed here by the Bulls as we face a holiday shortened week and head into the second half of 2008. That said, traders will no doubt be highly cognizant that a "typical" bear market pullback still lies some ten-percentage points below, as measured from the top.
Sentiment: Very Bearish Volatility: Moderate(VIX 18-24) Direction: Down
The Style-Box was calculated using the following PowerShares™ ETFs: Small-Growth (PWT), Small-Value (PWY), Mid-Growth (PWJ), Mid-Value (PWP), Large-Growth (PWB), and Large-Value (PWV). The Sector-Ribbon was calculated using the following Select Sector SPDR™ ETFs: Materials (XLB), Industrials (XLI), Energy (XLE), Staples (XLP), Discretionary (XLY), Financials (XLF), Technology (XLK), and Healthcare (XLV). The Standard & Poors 500, Dow Jones Industrial Average and NASDAQ 100 may be traded through ETF proxies, including the SPY or IVV, DIA and QQQQ, respectively.
We've got a small bounce up to R1 on this final day of the quarter and end to the first half (say SPY $128.85). We are pausing at this level as oil decides whether or not to continue to cooperate. Cumulative Tick is positive, but not overwhelmingly strong with the A-D line essentially flat. By the same token, all of the leaders are participating off of the morning lows.
They tried to take it down twice -- but have stabilized more or less around a flattened VWAP. Cumulative Tick and the A-D line continue to suggest some caution. That said, I believe we are near a short-term bottom. That was a real throw away yesterday. Bounces so far this month have been anemic at best; I expect a healthier one ahead including a flat to positive close on the day, if not narrowly so. Below are some analyses of the low VIX & PUT/CALL readings noted yesterday.
10:15AM PST UPDATE: Only an hour later and I'm going to have to change the break-even view unless we see some support here and soon. Looks like the SPY may get some at S1 @ +/- $127.30.
1:05PM PST UPDATE: Looks like we made it to the flat line/ near loss in all but the Dow after all. I haven't looked under the Dow's hood to see what's specifically killing it so badly, but certainly the shift in the global growth story viewpoint is contributing. In all, not a bad hammer doji put into the S&P 500.
On a lighter note on this big down day, below are a few of the promised cross-country family move photos from earlier in the month. Could that big fuzzy brown fellow with the large teeth and claws have been a harbinger of things to come? We ran into him in Yellowstone -- apparently he was working his way east to Wallstreet as we made ours westward to the coast.
Ouch. I started buying when Tick didn't show the same weakness exhibited by price. Several items in the mix today, from analyst downgrades, softened tech outlooks, and an oil spike -- but really it seems there just aren't any buyers out there. Certainly a stronger than usual post-fed hang-over. Could be a good trade, but be careful... next stop down isn't pretty and I don't like to see these multiple tests of the recent lows.
10:35AM PST UPDATE: It's difficult to use technical analysis to pick the next level of potential support here. We could be close as we are near the level of non-extreme bottoms from earlier this year and we've already had a sustained down leg with extremely weak reversals, if they even qualify. However, should we break down further, we are looking a a fairly large potential range lower of SPY $126-128. Not nice to think about - but a distinct possibility. Cumulative tick finally definitively broke down; I won't take further risk until reassessing near the close. May be an overnight trade and/or longer-term swing opportunity in there. Quad-Q's are down 3.5% as I post this.
12:30PM PST UPDATE: Has anyone noticed the VIX is relatively low at 23.66? Maybe everyone is already hedged? Maria Bartoloma just noted how we should take solice in the low volume today. My studies indicate the exact opposite! More on this later.
Not huge as a percentage gain, but we've seen a nice reversal on the day. We remain over-sold and cumulative tick is just now picking up some steam. The prior stars, tech and small-caps, are still lagging a bit.
11:25AM PST UPDATE: Bit of resistance at the declining five-day moving average. It would be nice to break through, but in the mean time tighten stops.
Coming into the day, the 2-Day RSI reads  just under ten. I'm getting my toes wet and will become incrementally aggressive with any further pull-back.
9:55AM PST UPDATE:
A shallow bowl formation has thus far bottomed out at Friday's lows. Cumulative Tick and the VWAP remain negative, however. I'll probably wait until day-end to put any more on unless Tick turns up more convincingly.
As Rob Hanna pointed out, Thursday was a bit of a lame reversal and we were hit hard on Friday. I'm sure expiration didn't help -- though I had expected quite the opposite. Nonetheless, it felt like overkill based on the news, but statistically Monday has a downside edge in spite of it all. Maybe well see some nice long set ups come of it. I'm looking for SPY support around 1300. By the same token, if we break lower, I'd say another succesive test of the prior lows has the potential for further breakdown still.
Meanwhile, friends and family know the Pietsch's have recently moved to Washington State. I've been a bit in flux getting set up, but now have the "big" machine up and running and will resume normal posting. Thanks for your patience these last two weeks. I'll get some trip pictures posted for fun as/if Mr. Market permits. Also, all the planning for the move got in the way of many planned statistical study posts. I'm hopeful that I'll finally get around to some of these over the course of the summer.
... to tell you yesterday wasn't a good harbringer and that we remain in a longer term downtrend. While I had a positive expectancy coming into the week, you have to be flexible in your views in this business.
Fortunately yesterday's warning was enough to keep us out of too much trouble, though in retrospect I'll have to beat myself up for not taking more off the table on the gap up. FedEx has a way of riling the markets; today is no exception. However, I tend to think we should find support around these levels. As an aside, I should be getting back to my cumulative tick posts first thing next week.
Only a precious few long pullback candidates today. On occasion this can indicate potential weakness ahead. I don't necessarily think this will play out, but am keeping position sizing well below normal for now. It was also strange how oil was largely ignored yesterday. Will there be a delayed reaction, or is yet another top anticipated? As a disclosure, I am holding a small quantity of DUG, the inverse oil and gas ETF for a trade.
9:35AM PST UPDATE: First, note I am now officially on Pacific Time. Second, I'm looking for potential S&P 500 support near 1350.
Going into expiration, I have a positive expectancy for the week, particularly given the strength we are seeing in light of the sour news and reaffirmed tech leadership. However, I am reluctant to put more money to work until we experience a small pull-back/ dip, such as seen earlier this morning.
As promised, I'm back at work here after an amazing family break. More on this soon. As for last week, some large ranging Lehman and Oil induced red bars there. Ironic as my last post title noted fear dissipation! And now Oil is nearly at $140 a barrel -- amazing! If one were to look at just the last two months of trading, one may conclude we have just seen a head-and-shoulders top set up to retest the year's lows. Not a prediction, just and observation.
Although Asia finished strong, today may certainly be tough with oil again, as already seen in the A.M. and especially after last Friday's minor recovery attempt. In this regard, keep a close eye on the oil ETF (USO) as a real-time contrarian proxie.
Below is a chart of the S&P 500s 5-day and 2-day past relative strength indications reading left to right. I often find it helpful to look at extreme reading of these shorter time frames when considering immediate overbought/ oversold conditions as compared to the "traditional" 14-day window.
Good retail and jobs news is behind a bit of rotation back into equities, supporting a nice bounce. Will we make it through the 200-day averages more authoritatively this time around?  If we can just make it back above the 20, I'd guess so.
This will be my last post until mid-month while on family vacation. Good trading to you all, and please check in again around the 15th!
Commodities are taking a break, but so are equities today. As a heads up, I will be taking a family vacation later this week through the end of next week, so posting will be light. Watch internals closely - though we are down a bit in price, up volume/ advancers are still narrowly in the lead.
1:50PM CST UPDATE: Quick second leg down. I had been expecting this earlier as follow through to yesterday's downward vol, and thought we were perhaps past the risk.
A brief unrelated rant, so above the S&P is plotted against the DBC "PowerShares Commodity Tracking Index." There is now talk of regulating vehicles like this to reduce "speculation" in commodities. There may be some truth to the argument that there is a rise in buying pressure as these new vehicles are created. After all, the average investor has easy access to these markets for the first time, which are generally uncorrelated to equities, and thus make good portfolio diversification plays.
Nonetheless, let's say there are fundamental changes in supply and demand happening as well, which I don't think anyone would argue too vehemently against. How will it make you feel when you are not allowed to hedge these risks! Tread Lightly Mr. Regulator!
Banks and financials are facing an industry wide downgrade today. After a month of divergences, they are bringing everyone down. Cumulative Tick is very negative, although we seem to be "resting" at the 50-day moving average and we've just seen a massive supportive volume spike.
Interestingly, the fund has been indicated to move out of the bond safety trade, so we are nibbling, but nervous about it. As an aside, Google's Blogger is seriously overloaded today.
Jeff Pietsch is a registered investment adviser in the State of Washington. The adviser may not transact business in states where it is not appropriately registered, excluded or exempted from registration. Individualized responses to persons that involve either the effecting of transaction in securities, or the rendering of personalized investment advice for compensation, will not be made without registration or exemption.
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