The correction in equity markets continued last week with the NASDAQ dropping 1.5% Friday and the S&P 500 (SPX) dropping 1.4%. This made last week the 6th consecutive loser for the markets which is the longest weekly losing streak since summer 2008 during a bear market. While we could be nearing a good spot for a tradable bounce, the bottom line is that the market remains above investment grade risk for new swing trading or investment positions. Traders should limit all new trades to short term trades only.
The QQQ, an ETF representing the Nasdaq 100 index has dropped from a 59.34 on May 2 to close Friday at 54.64. It opened 2011 trading at 54.96 so has basically given up all gains for the year. The NASDAQ composite index is actually down 0.3% for 2011 and trade at its ever important 200 day moving average Friday. The SPX is approaching its 200 dma as well.
This is options expiration week, but could be an extremely important week for the intermediate market outlook. The markets are in decline and oversold but the last rally was met with real selling to drive the indexes back down to current levels. Should the 200 dma be violated this could lead to a more severe correction over the summer months. The fear that the economic recovery is in danger continues to weigh on the market and the financial sector is particularly weak.