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Stocks take turn for the worse

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Stocks are lower for a second straight session as "shocking" news from DRAM maker Micron Technology (NYSE:MU) $10.59 -20% that losses were larger than expected, have the Semiconductor Index (SOX.X) 301.35 -5.99% leading today's sector loser list, breaking below its trending higher 50-day SMA of 308 and challenging important psychological support of 300.

The trade lower in semiconductors is weighing on other technology sectors as "hope" that a cyclical bottom in the chip sector may be in doubt.

Sector action on a broader scale is negative with the Gold/Silver Index (XAU.X) 75.93 +1.68% rebounding from yesterday's declines, while the Morgan Stanley Health Providers Index (RXH.X) 282 +0.07% is the only other sector showing a gain.

I'm keeping a close eye on the S&P 500 (SPX.X) 889.19 -1.52% at current level and for a trade at the 885 level. Today's trade sees its point and figure chart reversing back lower and a trade at 885 would trigger a double-bottom sell signal and confirm a break in the longer-term bullish support trend that took place late last week.

S&P 500 Index Chart - 5-point box scale

This morning's low in the SPX has come at 887.82, which just barely undercut Friday's low of 888.48. I'd look for bears to leg further into any partial positions established earlier should the SPX trade the 885 level and institutions to further hedge their bullish inventory of stock. Tonight, I will also want to keep a close eye on the S&P 500 Bullish % ($BPSPX) for a potential reversal back to "bull correction" status should the bullish % retreat to a reading of 62.00%. Last night's reading was 62.8% and I'd think today's lower trade would have the bullish % slipping back to "bull correction" status.

In this morning's 09:00 Update, we looked at the retailers and the Retail HOLDRs (AMEX:RTH) $70.20 did trade the $71 level to negate the prior bullish vertical count, which gives me thought that the same is in store for the broader markets. The retailers were my "key" sector for a strong consumer, but it looks as if the MARKET is disagreeing with that scenario. As such, my view of any type of near-term or lasting bullishness must be reviewed and defensive action taken. I would look for similar views to build in the coming weeks.

Jeff Bailey

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