Stocks got off to a rough start yesterday morning, but a mid-day reversal
lifted the major indices back into positive territory. However, another round of
selling in the final hour caused the main stock market indexes to finish with
mixed results. The Nasdaq Composite, down as much as 1.0%, and up as much as
0.5%, settled with a fractional loss of 0.1%. The S&P 500 closed 0.3% lower,
but the blue-chip Dow Jones Industrial Average fared worse, declining 0.9% by
the closing bell. Small-caps continued to be the bright spot, as the Russell
2000 managed a gain of 0.4%. The S&P Midcap 400 similarly ticked 0.3%
higher. In typical fashion of an indecisive session, the major indices finished
near the middle of their intraday ranges.
Like the closing prices, turnover was also mixed. Total volume in the NYSE
rose 7% above the previous day's level, but volume in the Nasdaq receded 3%. The
S&P 500's loss on higher volume caused the broad-based index to register a
bearish "distribution day," its third such day of institutional selling in
recent weeks. Combined with the "churning" of August 11, the price to volume
relationship of the S&P and Dow has become a bit more negative over the past
week. Nevertheless, the Nasdaq managed to evade the same label of a
"distribution day" because volume backed off slightly. In both the NYSE and
Nasdaq, declining volume only narrowly exceeded advancing volume.
After getting totally pummeled by sector rotation and a strengthening U.S.
dollar over the past five weeks, commodities finally bounced yesterday. But for
those of you thinking this is the absolute bottom, and a good buying
opportunity, we caution you to re-consider. Unlike other corrections over the
past year, this one destroyed most long-term chart patterns. Advanced, ultra
short-term traders may successfully trade the momentum of a quick bounce, but
there is simply too much overhead supply to expect commodities to move much
higher without first forming a multi-month based of consolidation. Consider the
U.S. Natural Gas Fund (UNG), for example. It rallied as much as 75% this year,
but now is showing a year-to-date gain of just 9%. In fairness, a 9% gain in an
8-month period is, in and of itself, a pretty decent return for any ETF in this
environment, but the technical problem is that UNG gave back nearly all of its
advance. Extensive overhead resistance levels will probably prevent UNG from
going much higher for a long time.
One commodity ETF that still may be in play for the intermediate to long-term
is U.S. Oil Fund (USO). Unlike many others, USO is one of the few commodity ETFs
that hasn't broken support of its long-term uptrend line. In fact, it has begun
to reverse right at lower-channel support of its primary uptrend line.
