We are seeing some selling capitulation, as the key indices have declined in four straight sessions and five straight weeks. The failure to bounce back after the over two-percent sell-off on June 1 was negative and foreshadowed more downside moves.
While there is a desire to buy, you should be careful and wait until we see if there is firm buying support. That is my investment advice at this moment.
Investor sentiment on the New York Stock Exchange, which had been bullish for the past year, turned bearish on Monday for the first time since in a year since June 7. This may be a warning sign; however, by itself, unless it continues to flash a bearish sign, it is not a big concern at this moment.
The lack of market leadership at this juncture from banks or technology is not helping.
On the charts, key developments include the S&P 500 closing below its April low of 1,294 on Monday. Failure to hold could drive the index to its 200-day moving average (MA) of 1,245.
The Russell 2000 closed below 800 and the NASDAQ is within two points of testing 2,700.
Technically, the picture looks moderately bearish in the near term on weak Relative Strength. Watch for some buying support due to the oversold technical condition.
All four of the key indices are below their respective key 50-day MAs—a bearish sign.
There’s some exhaustion on the charts and potentially more downside weakness.
The market is drifting slightly lower. About 59.21% of all U.S. stocks are above the 200-day MA as of June 6, down from 75.79% a month ago. For the shorter-term moving averages, the monthly decline has been more significant. Only 17.56% of U.S. stocks are above their 20-day MA, down from 42.45% a month ago.
Domestically, there are renewed economic concerns in jobs and manufacturing.
Globally, there is optimism that Greece will receive additional funding to pay down existing debt. However, as I’ve said, the situation in Greece, Ireland, and Portugal remains grave and could worsen.
I sense that the upside is limited at this juncture and stocks could drift lower or trade sideways through the summer months. The weak economic data suggest weakness.
To continue on something that I have emphasized, the key is to monitor your positions and take some profits on the big winners. The last thing that you want is to see the big gains disappear. Always take some profits along the way—especially in a rising market.
Trim some of your positions if you have not done so.
Option traders could use call options to play potential gains, while taking some profits on current stock positions.
You can use put options as a protective hedge and write covered calls to generate some premium income should the market pause. In this way, you can manage the risk.