With all of this negative analysis, could it be a contrarian indicator?

Financial Sense - PFS Group

BY THOMAS J SMITH CFA

06/06/2011

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The S&P 500’s decline has now stretched to five weeks. This is the first five week decline since June and July of 2008. The S&P 500, Dow, and NASDAQ all closed below their respective 4 and 12 week exponential moving averages. This signals that the intermediate term trend in the market, until the averages close above those moving averages, is now negative. The monthly bias remains positive as the markets remain above their 12 and 20 month moving averages. 

The daily bias on the markets is also negative as the markets closed Friday at six week lows. The selloff on Friday was sparked by the morning employment data. Nonfarm payrolls for May climbed by 54,000, which is less that the 169,000 additions that had been expected. While the employment data was weaker than expected, the ISM non-manufacturing survey was better than expected. The S&P 500 was off 2.2% for the week after declining 1.35% in May.

49% of the stocks in the S&P 500 are either basing or advancing. Only 46% in the broader markets stocks are technically sound. Prudence is key here. In this environment you have just a coin flips chance of picking winners. Make sure you pay attention to the charts of the stocks in your portfolio. There is a rotation out of past winners and investors are reducing the overall risk of their portfolios.

The recent economic data and seasonal factors have led investors to question the strength of the global economy. The market broke above a recent down trend just on Tuesday of last week, breaking the cycle of lower highs and lower lows. That abruptly changed Wednesday. The market sold off sharply in response to weaker-than-expected ADP employment data. All market technical readings on Tuesday were extremely positive. That story completely reversed on Wednesday. The sell-off continued Friday. The action of the market has been erratic and underscores how confused investors are at the moment. To see such strong action in the market early last week followed by aggressive selling is cause for alarm.

For now the bears are in control of the market. The S&P is still up for the year. However, the technical readings of the market have deteriorated significantly over the past few weeks. The key levels of support are 1294 S&P 500, 12,090 Dow, and 2705 NASDAQ. If these levels are broken the intermediate term trend will be negative and the sell-off will likely accelerate. 

We should use rallies in names that are deteriorating to sell stocks. 1294 on the S&P 500 marks a 62% retracement of the March low/May high rally. The swiftness of the selling since the high in May is worrisome and signals that rallies should be used to reduce the risk profile of portfolios. 

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S&P 500 Breaks Down

John Nyaradi 

Major indexes decined today and now the S&P 500 is on a point and figure "sell" signal, the last of the major indexes to hit this point.  We now are at lows not seen since mid-March. 

Downside price objective is now 1200 with no visible support until 1250. 

 

chart courtesy of www.stockcharts.com 

This is the last major index to go on a "sell" signal but all are still within the context of a longer term bull market denoted by the blue Bullish Support line at approximately 1080 on the S&P 500.

Decliners led advancers by 4 to 1 and today's session was the fourth losing day in a row and the beginning of the sixth week of losses for major indexes.

Tomorrow we hear from Dr. Bernanke regarding his assessment and for any hints of "QE3," which is likely to be a tough sell unless things get really ugly in the economy.

Meanwhile, the Shanghai Composite is in official "correction" and even bear market territory, down 10.5% from its mid-April high and now well below its 200 Day Moving Average.

On the other side of the world, the Greece drama continued as political pressure mounts agaisnt the austerity programs, demonstrators fill Syntagma Square in Athens and the two year bond yield hovers at a whopping 22%.

At Wall Street Sector Selector we remain comfortable with our inverse ETF and put options positions. 

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Strong Futures and Euro, but Likely a 7 Day Bounce Only

 

By Barry Ritholtz - June 7th, 2011, 7:48AM

I have a ton of errands to do before heading to the airport, but I wanted to get a few thoughts out beforehand:
On the back of ECB chief Jean-Claude Trichet’s comment about Greek debt rollovers, markets around the globe have turned positive rallied. The euro hit a one-month high versus the US dollar.
Stocks in Europe gained about 0.2%, while US SPX futures climbed 0.6 %. The 10-year Treasury is a mere 3 bips above 3%  mark at 3.03%
Last week’s big sell off was a 90/90 day, meaning 90% of the trading breadth and 90% of the share volume were to the downside. The playbook favors a 5 -7 day bounce, and then a resumption of the move downwards.
Here is what Lowry’s Paul Desmond, the creator of the 90/90 indicator, has said about these days:

With the evidence currently available from our measures of Supply and Demand, the probabilities favor a limited recovery rally. The 74 year history of the Lowry Analysis shows that such rallies are usually best used to sell into strength and build defensive positions. However, it is important to recognize that exceptions to the probabilities are always possible.”

We are off the recent peak by less than 6%. My best guess as to the extent of the pullback is a 7-12% move lover from the highs.  As we get more data, I’ll try to update that projection.
Be back shortly . . .
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SPX Breaks its 1 year Up Channel

Chart courtesy of FusionIQ