The bulls were unable to build on Tuesday's strong afternoon momentum, as
heavy selling across the board shut the door on any potential short-term rally.
In classic bear market form, the only bounce in action yesterday came during the
lunchtime doldrums, which was quickly resolved to the downside right on cue with
the 2:30 reversal period. The selling intensified throughout the afternoon and
into the close, as every broad market index we monitor finished at the lows of
the session. The Nasdaq Composite and Nasdaq 100 erased all of Tuesday's bullish
candles and more, closing down 2.3% and 2.5% respectively. This was very much
the theme of the day, as the small-cap Russell 2000 and S&P Midcap 400 also
retraced bullish reversal candles and dropped 3.0% each. While the S&P 500
and Dow Jones Industrial Average held the prior day's lows, the heavy selling
into the close increases the odds of a morning gap down that would clearly
violate the S&P 500's July 1 low, and possibly undercut the 2008 intraday
low set on March 17. The S&P 500 fell 1.8%, while the Dow skidded 1.5%.
Though total volume eased by 8% on both the NYSE and Nasdaq, it came in well
above the 50-day average levels, indicating heavy institutional participation on
the sell side. Market internals opened in positive territory, but eroded
throughout the session, with declining volume outpacing advancing volume by a
significant 5 to 1 margin on the NYSE, and 4 to 1 on the Nasdaq. Advancing minus
declining issues on the NYSE registered a +500 reading on the open and closed at
-1,550. A decline of 2,000 issues intraday is quite substantial, and confirms
the intensity of yesterday's selling.
In the June 20 issue of the The Wagner Daily, we
noted money flowing out of top performing groups such as energy, and into some
of the lagging groups such as biotechs. Two weeks later we finally see
confirmation of this, as the leading commodity-driven stocks of 2008 came under
severe distribution. Top energy ETFs Market Vectors Coal (KOL), Oil Service
HOLDRS (OIH), and SPDR Oil & Gas Exploration & Production (XOP) all
suffered heavy losses. Industrial metals fared even worse with vicious, wide bar
selloffs in SPDR S&P Metals & Mining (XME) and Market Vectors Steel
(SLX). This enabled us to cover our SLX short position into extreme weakness
late in the afternoon, locking in a nice gain of 11 points. Market Vectors
Agribusiness (MOO), which we pointed out as a potential short sale two days ago,
plunged 5.7% yesterday. With commodity stocks coming unglued, the market is
quickly losing all leadership, which will make it all the more difficult to
sustain a meaningful rally off the lows over the next few months.
