Will Reality Trump Perception in New Market Downswing?

Given that almost everyone knows the dire straits of this economy, it was odd to see the market sell off on the weak Empire State and Housing Market index reports juxtaposed to the recent verbal support being extended to the dollar by finance ministers from Japan and Russia and strong demand displayed in Monday’s treasury auction.

The divergent spread between perception and reality may be narrowing. Judging from China’s slight fading on its commitment to purchase U.S. treasuries, this could be the case. Whether Monday’s market action signifies the start of a new downswing remains to be seen.

Monday, all four of the major equity ETF indexes covered in this report were downgraded, i.e. 2 new downtrends and 2 new lateral trends.

Below is Monday’s market summary, market conditon and trend analysis, and support and resistance tables:

Market Summary

• The DIA closed down -2.06% at $86.49 and $0.79 below its high and $0.49 above its low on 9.92% higher volume and -18.26% lower average volume. Daily PMI* is at 38 and 5 day moving average PMI is at 49.
• The SPY closed down -2.29% at 92.90 and $1.12 below its high and $0.50 above its low on 21.6% higher volume and -10.56% lower average volume. Daily PMI* is at 31 and 5 day moving average PMI is at 47.
• The QQQQ closed down -2.05% at 35.90 and $0.43 below its high and $0.32 above its low on 2.49% higher volume and -7.78% lower average volume. Daily PMI* is at 43 and 5 day moving average PMI is at 53.
• The IWM closed down -2.69% at 51.36 and $0.73 below its high and $0.56 above its low on 4.19% higher volume and -14.06% lower average volume. Daily PMI* is at 43 and 5 day moving average PMI is at 49.

(*PMI measures and indicates strength of the underylying security’s trading range on a scale of 1-100.)

Market Condition and Trend Analysis

ETF Index	Market Condition	Short-Term	Intermediate	Primary
DIA	overbought	lateral	up	down
SPY	overbought	down	up	down
QQQQ	overbought	lateral	up	up
IWM	neutral	down	up	down

Support, Pivot, & Resistance Levels for Tuesday, June-16-2009

ETF	Index	S3	S2	S1	Pivot	R1	R2	R3
Diamonds Trust	DIA	84.03	85.31	85.9	86.59	87.18	87.87	89.15
Russell-2000	IWM	48.84	50.13	50.74	51.42	52.03	52.71	54.00
Nasdaq-100	QQQQ	34.44	35.19	35.54	35.94	36.29	36.69	37.44
Spdr Trust	SPY	89.87	91.49	92.19	93.11	93.81	94.73	96.35

Disclosure: Hillbent.com, Inc. or its affiliates may own positions in the equities mentioned in our reports. We do not receive any compensation from any of the companies covered in our reports.

Comments

[jambo:]

China backing off on our treasuries is a well thought out and well timed response to our printed money jones.
One might even view them as the compassionate pusher; watching their best customer head over the edge of its capacity to deal with its course of action, China wisely decides to "cut" the cash/dope we've become accustomed to rather than to send us cold turkey into detox.
Having helped two of the last three presidents get elected, they are also becoming more adept at running our economy than we are!
It could be worse i suppose, given our inability to handle financial reality. I for one would rather suffer detox but political reality says that just aint gonna happen.

Jun 16 01:23 PM

[jambo:]

....at least not until very many more Americans are severely penalized with devastated lives due to the grand mal we're in for.
We are just trying to get across town but the Fed has its foot pedal to the metal with a brick wall approaching ever faster.
Would it not be better to suffer a real bottom sooner than a deeper bottom later?

Jun 16 01:34 PM

[carey_jim:]

The perception-reality gap is due, of course, to business/government advertising and public relations efforts.

If you yell 'fire' in a crowded building, people will trample over each other running for the exists, whether the building is burning or not. Governments and corporations are trying to prevent a stampede.

They have been so reassuring that markets are starting to recover, as the rise in new housing starts demonstrates. But the worst thing to do in a housing market where prices are falling and inventory is growing, is to build new homes.

Speculators have made 40% and more and are looking at the exits. But it's anyone's guess as to when 'reality' will reassert itself over manufactured optimism. That's what makes speculation so much fun.

However, don't forget to smell the tulips.

Jun 16 02:04 PM

[Mad Hedge F...:]

I hope so. It looks like the worm has finally turned. Hedge funds that rushed headlong into piling on new risk positions as recently as last Friday are now unwinding them today just as fast. All last week the smart money was selling to the late comers, newbies, and wanabees. The Viagra is starting to wear off. It’s time to take short term trading profits on crude (USO), commodities (DJP), all stocks (SPX), emerging markets (EEM), short Treasury bonds (TBT), all currencies (FXE), and junk bonds (JNK, HYG). I love all these things long term, but suffer from a short term tolerance for paid. When the best case scenario is sideways, I’m outa there. Look for decent bounces in risk reducing positions like the dollar ($USD), short dated Treasury securities (CSJ), and defensive sectors like utilities (IDU). It has been obvious to me that all of the good, long term holds were rolling over on shrinking volumes right at 50 or 200 day moving averages, since last month (see “Sell in May and Go Away” at www.madhedgefundtrader...).

Jun 16 02:30 PM

[jambo:]

MadHedge
In reviewing your post I see that I'm beginning to understand how much I dont know but am getting a direction to look, at least.
Gold was conspicuously absent in your sell recos..., I saw no mention of precious metals. Or do you include them in commodities?

Seems like we may watch a drop there short term but I'd hate to blow my carefully nurtured positions in a moment of bad timing.

I've learned more from the comments here in 6 months than in the previous 15 yrs. Thanks!

And C_J,
"However, don't forget to smell the tulips." sage advice, thanks for that. There is such a thing as not being able to see the trees for the forest!

Jun 16 04:52 PM

[Alphameister:]

Must be wonderful to know so much more than the market when it comes to assessing reality!

Jun 16 05:25 PM