Market Summary

While the weekly performance shows all markets except natural gas in the green it is rather deceptive as the markets actually sold off substantially from the highs for the week. The markets were not able to break above the prior weeks highs and closed near the lows for the week. And while gasoline, oil, and the emerging markets did make impressive gains to the upside the major indices were essentially flat for the week. This gives support to the bearish camp and the markets could sell off substantially in the near future. Uptrend lines have been broken and the smart money which usually trades in the last hour of the day showed heavy selling pressure especially on Friday before the long weekend. Next week being a short week could show continued selling pressure. Click on table to enlarge.

The sector performance continues to improve compared with last week. Basic Materials made impressive gains and Financials are nearly flat for the year to date period. Click on graph to enlarge.

There were several significant news events this last week not the least of which was the downgrade of the UK sovereign debt by Standard & Poor’s from stable to negative citing an increasing debt-to-GDP ratio. In turn, this spurred a sharp decline in the dollar and Treasuries on concern that the US may also face a negative outlook on its AAA rating. For the week, the dollar fell 3.6% and is down over 11% against a basket of other currencies since early March. The drop in the dollar gave commodities a boost with crude prices surging and the CRB index gaining 3.3%. Next week the US Treasury is selling 100 billion dollars in bonds: $40bn of two-year notes on Tuesday, $35bn of five-year bonds on Wednesday, and $25bn of seven-year debt on Thursday. Traders are watching closely to see what percent is being purchased by the US government itself in the effort to monetise its debt.

The chart below is a 3 month daily chart of the S&P 500 with a proprietary indicator I recently developed showing when prices cross the 20 period Simple Moving Average. As can be seen where the chart background color turns light green on March 12 it remained above the 20 SMA until Thursday May 21st when prices broke down below the moving average and the background again turned the pink color. This is an indication of price weakness. How far down we go we will just have to wait and see. Click on chart to enlarge.