OVERBOUGHT MARKET FINALLY SUCCUMBS TO SERIOUS SELLING -- SHORT-TERM SELL SIGNALS KICK IN
OVERDUE PULLBACK STARTS ... It took a number of negative reports to finally cause some stock selling. Today's combination included bad retail sales figures, higher import prices, and a wider than expected trade deficit. It shouldn't have come as too much of a surprise however. On Tuesday I showed a negative divergence on the number of stocks hitting new highs with the market dangerously stretched on the upside. I stated, however, however, that the market hadn't given any short-term sell signals. It did that today. First of all, today's selloff came on heavier trading. Chart 1 also shows that the 9-day RSI line has undercut its late April low for the S&P 500 SPDRs (SPY). And the daily MACD lines have turned negative for the first time in two months. I stated on Tuesday that either of those indicators could signal a short-term top. Both did today. It seems logical to expect the S&P 500 SPDRs to pull back to their February high near 146. No groups were left unsold today. Bonds were the only asset class to rise (as they usually do when stocks sell off). A bounce in the dollar also caused some heavy profit-taking in gold which dropped $15. One of the clues that the market might be ready to do some correcting was the inability of small caps to reach new highs. They led the market lower today. Foreign stock ETFs also had a bad day. There isn't much more to say at this point. The market had risen too far too fast and was due for a setback. That setback started today. We'll go into more depth tomorrow in our Friday market wrapup.
Chart 1
