Markets began the week Monday on a dour note with a very brief move into positive territory in the mid morning hours, a rally attempt I though was taking place to early to prosper. The averages went out on their lows, and once again it was the Nasdaq which suffered the largest loss of .9%. The S&P 500 clipped off .9% and more alarming was the drop of 1.1% with the Russell 2000, putting a real damper on risk taking. All of the major S&P groups gave up ground Monday and the “best” performer on the day was the utilities, down .1%, but the XLU is still defending the round 50 figure strongly. Troubling to us from the get go was the lack of excitement concerning the MSFT/LNKD (XLK was worst performer Monday down 1.1%) news which should have energized the bulls. Was it to obvious that the indexes would fail yet one more time at important levels, even with all the sentiment and breadth indicators favoring the bulls? The recent tape could be a bear trap, but price action supersedes all other indicators. Other criteria the bears can hang their hat on is the inability of some decent looking breakouts to fall apart. On a healthy tape breakouts should flourish and continue to advance, or even a slight pause, but we have been witnessing a bit more than we are comfortable with. Below is the chart of IBM which we profiled in our Thursday 5/26 Game Plan. The stock did take out a 153.62 cup base trigger originally on 5/31 and it CLOSED below every session since with the exception of 6/8. The inability for IBM to make even the smallest progress was a red flag.
This article requires a Chartsmarter membership. Please click here to join.