Short Week Was Plenty Painful

Only four trading days this week - and that was quite enough.

The markets sank again this week, with the S&P 500 down 1.2%, the NASDAQ down 3% and the Dow down 0.5%. The biggest loser of all was the Russell 2000, down a whopping 4.6% in just four days of trading.

The Dow, the NASDAQ, the Russell 2000 and the S&P 500 are all showing double digit losses year to date. Stocks have formally entered bear territory.

It seems like investors are grasping for anything positive. Sales at General Motors (GM) were terrible, but not quite as horrible as expected, and this instigated a rally on Tuesday. The next day Merrill Lynch downgraded the automaker and suggested that bankruptcy wasn't out of the question. The market went down again.

A bad earnings report and warning from Nvidia (NVDA) caused the semiconductor sector to sag and with it, the NASDAQ. A drawdown in oil inventories caused oil prices to increase and stock prices to decrease.

The June employment report held no particularly good news but was close to expectations. ISM services came in below expectations. To my surprise, these fairly negative reports did not send the market plunging, as "less bad" is now considered good enough

Yet, with the week complete, we can observe plenty of damage in the broad market.

An overview of the short-term technical picture is presented in the following chart of market statistics collected by our Alert HQ process. Each weekend we scan over 7200 stocks and ETFs looking for BUY and SELL signals. We also collect various technical information that we roll up into a chart like the one below:


We plot six different indicators. Again this week, they all reflect significant weakness in the broad stock market.

Moving average analysis

The bad news in the moving averages gets worse every week it seems. The number of stocks trading above their 20-day moving average dipped below 1000 this week. This is the lowest since I have been gathering this data.

Likewise, the number of stocks above their 50-day moving averages fell to just 1120. That is only 16% of the total number of stocks we evaluate.

These are the worst numbers since March.

The number of stocks whose 20-day moving average is above their 50-day moving average also continues to drop at a steady rate. We are not quite at the levels we saw at the March lows but we are extremely close. Barely one quarter of all stocks can now boast that they are trading in a bullish manner based on the 20-day MA above the 50-day MA .

Looking at buying and selling pressure

The Aroon analysis we do shows stocks in strong up-trends or down-trends. The chart shows the number of stocks found to be in strong up-trends dropped yet again last week. It is now under 8% of all stocks.

The number of stocks determined to be in a strong down-trend increased strongly this week and is closing in on 70% of all stocks we examined.

We also plot the results of Chaikin Money Flow analysis. The number of stocks undergoing strong accumulation or buying has now dropped to under 290. Not shown on the chart is the number of stocks shown to be undergoing strong distribution or selling. This indicator has now increased to over 2000.

S&P 500 Sector Analysis

The following charts summarize how the various sectors that comprise the S&P 500 are performing technically. The first chart below is from a month ago and shows results as of the end of May.


This next chart shows the results as of the end of this week, which includes the June month end:



It is easy to see the deterioration in all the sectors, though Energy seems to be hanging in there. The sectors most vulnerable to recession and the credit crunch have naturally plunged. This includes Financials and Consumer Discretionary. Technology was a bright spot that recently dropped out of favor. The latest casualties are Industrials and Materials.

Defensive sectors have had mixed results. Utilities are showing some strength, but Consumer Staples have not. Health Care has gone from mediocre to fairly weak.

In conclusion, I can only say that there seem to be few places to hide in this market downturn.

 

Comments

[galewhitaker]

Paulson and Bernanke are running out of rope. Its to the point that no amount of lying to the public or injecting funny money (M3) is going to trick the public into believing that the economy and the stock market are in great shape and the next big rally is right around the corner.

[pitaking]

The only way to play this is on the downside, sds, dxd, qid, twm ect....despite cnbc calling a bottom every single day the dow is going to 10,000 and the s+p 1220 in the very near future. If Alcoa shows a huge jump in input costs that hurts earnings, next week will be a fast and sharp drop.

[theinvestingspeculator]

Everyone likes to talk about stock for the long run, but between 1966-1981 they went nowhere. Sometimes they go down for long periods. like know-Nikkei down 12 days in a row

[edhaq$]

What can I do guys.Maybe a cash position?The news does seem extraordinarily bleak.Any advice here?

[icandoitdon]

there are no appealing options for equity investors unless/until oil prices decline sharply, which i have come to believe will not happen in the near term because oil is no longer trading as a commody...it is trading as a financial instrument. oil is the new gold....the currency of choice for those who have lost confidence in the financial system. this isn't going to reverse any time soon because we are in a new era. the u.s. is structurally flawed and every government/trader/inve... in the world knows it. it is not a promising environment for equities.

if you believe the market will be flat to down but not crash, you can hold cash and sell naked put and call options on broad indexes or on stocks you believe have the less dire prospects. i've managed to hold my own using this strategy, though it is not as lucerative as holding stocks in a roaring bull market. but it does beat the hell out of being long stocks in a bear market.

[chris_b]

These are absolutely fabulous charts and sheets, and my congrats to the creator. It's obvious that people and institutions took profits where profits were available. Running scared, it looks. When that high % of 20 over 50 dma's vanish in a month, money is running to safe havens.

I doubt if July will see the money turn much, especially with tension in Israel and Iran, strike threats in Brazil, and gasoline prices that have no business dropping. To those idiots saying oil will drop - that's total garbage. It will fluctuate, but with hurricane season on us, it's not going to drop much.

And big oil is making sure the green companies don't accomplish much, as people as seeing now that solar companies can't justify their valuations. Duh.

I feel July could improve some, and there are some stocks that will shine - nat gas, oil, energy, coal.. Maybe some safe havens like PG, and GE (if it can release some good news). Utilities will just sit stagnant I think.

These charts tell a lot, you just have to look.

[youngolf]

Thanks for the charts also, but please, not so much verbage on what 'we already know'. Don't like spending time reading experts telling me just what happened like I have been on another planet. E.g., the sun did rise today as expected.

[adan]

i like the commentary

whether i agree w/it or not, need it or not, i still think it's helpful to have

thanks!

[MARINE]

There is no reason to expect to see any number but down.Where can anybody find reason for any good news after seeing the results from june.Expect nothing but a precipitous drop across the boards until up will be the only direction that we can go.

Wake up everybody and smell the stench.The party is over.The avarice in the financial sector,along with zero oversight from the fed, has put this country and the rest of the world where we are today!

Help?. A knight in shining armor does not exist,just as a way out of the present financial condition this country is in.

Depression?.How many people that are now out of work, house and home are in a depression?.How many more are on the edge?.How many more will it take to be called a depression?.

Prospects?.What prospects are there when jobs have been shipped overseas by the thousands of super tanker size, all for the bottom line, with americans sleeping in their cars if they're lucky enough to still have one.

Outlook?.you and your family could be sleeping in your car soon.

Verdict?.Shame on all the greedy corporations and the government or better,lack off, that they could tell it to our face that they couldn't see this coming a long time ago.Shame on you all greedy,short sighted,paid off enablers who won't be paying for what you have engineered because of your over-flowing off shore and swiss accounts.

the outcome? disasterous.

[glacier32]

I agree oil is the problem and could be a market catalyst if it drop below $130.

Is this the time to take a contratarin view of the market? Earnings will not be great but will not be bad either if we can borrow a page from ORCL. Their products cost millions but still sell if not sold more.