The first two weeks of May saw heavy selling and there are still two weeks left in the month. I could almost just reprint my commentary from last week. The S&P was threatening to break 2,040 and the Dow had declined for a week after one big short squeeze day. Fast forward to this week and the S&P is threatening to break support at 2,040 and the Dow closed at an 8-week low after one big short squeeze day.

If the S&P moves below 2,040 we could see an acceleration of the decline. The rebound short squeeze on Tuesday failed to stick and the late week selling was definitely directional rather than choppy.

Repeating from last week: The Fed will be in play for June, the political campaigns are shifting into high gear and loose lips could be sinking stocks at every turn. The market is normally weak when the general election is in full bloom and candidates are slinging mud at an ever faster pace. This particular campaign should be the worst in decades for dirt digging and mudslinging. Add in the promises to make economic changes that could sink the economy even further and this could be a tough summer.

The Dow closed at 17.535 and has short-term support at 17,500 and again at 17,400 and 17,135. Then it becomes a long drop to the 16,000 range with a couple of speed bumps on the way down. The Dow chart is especially ugly with that 8-week low close. That is almost a guarantee we will trade down on Monday.

Now that the Dow earnings are over, many of the stocks are undergoing post earnings depression. Add in the depressed financial sector and Apple's weakness and it was a tough week with the index losing -205 points for the week despite the +222 gain on Tuesday.

The Nasdaq closed under key support at 4,750 and could easily test 4,600 with any further weakness. The Apple decline to $90 and the $7 drop in Netflix from Tuesday's high to Thursday's low were just a couple out of dozens of stock crashes that penalized the index. The damage would have been a lot worse were it not for the 3% rally in biotechs on Tuesday and 1% on Friday. That kept the index to only a 18 point loss for the week.

The economic calendar is busy next week with all manner of economic reports. The two most important events are the FOMC minutes on Wednesday and the Philly Fed Manufacturing Survey on Thursday. However, given the recent weakness in housing the three housing reports will also attract attention.

The earnings cycle is nearly over with a few big cap retailers this week to follow the apparel retailers last week. Walmart has already said their earnings in 2016 will be lackluster because of their restructuring expenses. Cisco Systems is the biggest tech stock to report and Applied Materials the runner up on Thursday.

Crude prices rose to a six-month high at $47 thanks to a reduction in inventories as a result of the fires in Canada and refiners ramping up for the summer driving season. With Canada's production down significantly for weeks to come, I seriously doubt we will see any inventory builds in the coming weeks. This suggests prices will retain an upward bias but futures expiration is next Friday. That always provides some volatility.

I am still looking for a significant buying opportunity in the weeks ahead. While a surprise summer rally would be nice, it would definitely be a surprise.

Jim Brown

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