To begin the week the stock market was able to maintain last Friday’s gains, but not build upon them. Energy is depleting. Stock prices cannot be maintained indefinitely when energy depletes. Moreover, we did not move higher to trigger our sell point on our short-term recommendation, meaning there was a total loss of momentum. The Standard & Poor’s breakout level at 1330 was maintained. It did not approach 1330 in the intraday. Overall, the market showed stability. Although the rampant bulls should be less than enthusiastic as we are not journeying to high levels with any high NYSE plus tick. A major divergence between the bond action and stock prices took place. The bonds had nearly a full point rally Monday, while stocks flat lined. Because of this the normal ratio between equities and bonds was distorted, creating pressure and increasing volatility. Distortions always work back to equilibrium eventually.
The S&P has made a higher high Tuesday proving the uptrend is still intact. The bonds reversed a full point and a half from the early morning highs just shy of the resistance area of 143 ½. The afternoon had the bond auction report that sent prices to their lows of the day pushing below 142.
Heaviness is a precursor to stock price erosion. Our sell short price was not triggered--an indication of a weakness in price versus tick horsepower. It appeared to be the end of a move with great potential to generate a topping process in the stock exchange. It could be in place for days, weeks, or even months. The bonds revealed their fear of the auctions Wednesday. The 10-year auction stymied price movements prior to the announcement.
I highly recommend keeping diaries on market conditions. On Thursday the 8:30 am EST. Jobless Claims report spiked the S&P to its high of the day. It was a pop that did not hold and became a notable price reference as a resistance. Put a star by that entry. Oscillation is more evident with daily upward and downward swings. It’s a different environment than even a week ago. The bonds had a cleansing free fall that obliterated some sell stops shortly after Thursday’s auction report. The ladder part of the afternoon saw the bonds hold above 141 with several quick and decisive rallies.
News items on Friday kept traders hesitant in the morning. International Trade at 8:30 am EST and Consumer Sentiment at 9:55 am EST were released. Then Ben Bernanke spoke at 12:30 pm EST. Bernanke’s speech was not able to mount a rally. There's no "silver bullet" to rescue the housing market, said the Fed chairman. The market turned bearish. Active trading was 100 percent below Thursday’s S&P support of 1340 in the futures. Furthermore, the NYSE tick registered more minus than plus readings.
Gold rallied to $1750, but failed again for the second time this week. An aggressive pullback is developing in that market. Oil put $100 to the test. It did not break above it, but closed just under the triple digit level. Asian stocks were positive for the 8th week with the help of the Greece austerity and the Jobless report. But Asian currencies lost due to Europe withholding the Greek bailout package.
The European situation will not go away, so additional news from the euro zone will not help the bulls’ case. The three popular indexes: Dow Jones, Nasdaq and S&P 500 all closed lower, but are still above a 4% gain on the year. Are markets at the edge of the precipice? Next week could be an important week for both the bonds and stocks alike.