MLR - PMP 6/6/13

Published : June 6 2013 at 8:38 ET

The markets were hit hard yesterday as heavier volume selling took the S&P 500 and Dow Jones Industrials Indexes down near their 50-day moving averages. The NASDAQ Composite sold off to a lower low, but volume was lighter on the day. Leading stocks continue to get hit, and a number of former leaders were observed to move below their 50-day moving averages, and in some cases actual 50-day moving average violations occurred, resulting in clear sell signals for those stocks, among them Celgene (CELG) and Stratasys (SSYS).

In our view, a recovery in the market will necessitate some kind of rotation into newer leadership, but so far this is not evident, hence the odds of further downside increase though leading stocks such as WFM, EA, and LOPE have managed to hold strong.

With the S&P 500 roughly at its 50-day moving average, this sets up a logical area from which we could see a reaction bounce or rally this morning, and futures are up slightly at the time of this writing. The question is just how long any such bounce lasts, and a movement by the NYSE-based indexes through their 50-day lines could coincide with the NASDAQ Composite moving down towards its own 50-day moving average. Currently the NASDAQ remains well above its 50-day moving average.

The Investors Intelligence survey of market advisers hit the lowest level since late April at 45.8% bulls. This can be a contrarian signal should this number reach extreme values. 45.8% is nowhere near extreme, so is not fodder for the bulls as of yet.

Since QE is still firing on all cylinders for the foreseeable future from the Federal Reserve, Bank of Japan, Bank of England, and the European Central Bank, the market could very well find a floor sooner than later. The Market Direction Model remains on a neutral signal, as caution continues to be warranted.

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