I mentioned in my first report many of the reasons
behind today's sell of, but a good overview was on
U.S. stocks slammed by downbeat data. It's a good
overview and worth a read but basically everything and
the Greek kitchen sink downgrade was thrown at the
I just want to go over the chart below which I took
after the S&P500 closed. The drop of 2.28% has brought
the S&P almost to the 100 day moving average. At 45.12
the ultimate oscillator is signaling that there is more
weakness to come and the divergence on the MACD is at
-1.85 again a clear confirmation that today's selling
has more to come. From experience, normally a selloff
such as today will not end overnight. There can be some
up days but most of them will be suspect until we see a
new higher high. My market direction call is to the
bearish side. Tuesday's volume for the rally was decent
at 2.8 billion shares, but we have seen better days and
poorer ones in the past few months. The selling today of
3.2 billion shares is not nearly as high as previous
sell offs which you can see in the chart.
Interestingly the VIX which measures the volatility in
stocks only got up as high as 18.48 and closed at 18.30.
On May 23 it reached a high of 20.03 before closing at
18.27. So be careful. As I said in my first report for
today, many stocks remain over valued which gives them
plenty of room to fall.
But the smart money has moved from commodities to
defensive stocks and I noted today that Clorox closed at
$69.34, which is a long way from $65.00 which I think is
more than fair value for Clorox. McDonalds (MCD) closed
at $80.98 which is way up in over valued territory and
PepsiCo (PEP) closed down just .31 cents keeping the
stock firmly in over valued territory. The smart money
knows how to play this game. Keep these stocks looking
strong and the retail investors will move into them, and
then the smart money can leave and the retail investor
can get hammered if these stock do not hold up.
Remember too that with a selloff like today, all the
"talking heads" will parade out their perma bears with
dire forecasts, but remember too that this market is as
manipulated as it ever was. The Federal Reserve wants to
see the economy grow, unemployment fall and people
continue to spend. That may mean QE3. In my opinion this
bull market is not anywhere near dead yet. I read an
interesting article on the Kobe Japanese Earthquake and
how it affected US unemployment for almost 12 months.
This latest earthquake-tsunami is only just starting to
be felt. Toyota and Honda earnings were terrible in the
latest release, affected by the recent Japanese
disaster. This latest disaster will take many months if
not longer than a year for the world's economies to
recover, let alone Japan.
Calling short term market directions is not easy because
as you have just read, there are more factors than just
technicals involved. Market sentiment often out weighs
the technicals and right now the sentiment is summed up
in a word - "worried".