- No new money for June as market gives the ‘in your ear’ day.
- For all the strength Tuesday may have shown, Wednesday showed the buyers are not dominant at this juncture.
- Economic data makes the second ‘summer of recovery’ look like the ‘summer of relapse,’ and on Wednesday investors took notice.
- ADP employment survey dives.
- ISM hobbles in just above the breakeven point as China manufacturing slows the most in 9 months.
- Moody’s cuts Greece to junk. One of more than a few to come.
- Wednesday’s jobs related dive makes Friday and its report all the more important for the stock market’s outlook.

MARKET SUMMARY

Another breakout attempt eats it.

For all the apparent strength Tuesday as stocks continued their upside rebound, Wednesday showed emphatically that the buyers don’t have the strength to take the indices out of their range for another breakout.  We all know June is not a great month for stocks and often finishes lower, but it didn’t have to try and get it all in one day.  Stocks opened lower, dove to the downside, then put in a series of lower highs and lower lows to the close.  No sign of life, no sign of defiance, just the buyers diving for cover.

NASDAQ -66, -2.3%; SP500 -30, -2.3%; DJ30 -280, -2.2%; SP600 -3%; SOX -3%.

This was a news-driven selloff.  Futures were basically flat heading into the day’s economic data.  Not bad given the 4-day run.  ADP’s monthly jobs survey showed just 38K jobs versus the 170K expected, and that got investors worried.  Futures turned negative, but no thunderously so, at least not in any way indicating the butt-kicking to come.

Stocks sold on the open.  Then there was piling on.  The ISM manufacturing index for May limped in at 53.5, well below expectations and well below the 60.4 in April.  That in addition to all of the negative data for the week and last week (Chicago, Philly, and Virginia manufacturing; pathetic Consumer Confidence; housing double dip; wimpy GDP to name a few) appeared to be the ringing bell that woke up the worry in investors. There was no attempt to rebound.  The indices put in lower highs and lower lows all session right into the close, removing half or more of the gains won the prior four sessions. Yes, an old fashioned butt kicking.

THURSDAY

Chain store sales (Same Store Sales), Weekly jobless claims, Productivity, Factory orders; plenty more news for investors to ponder.  They are due for something better but jobless claims are expected to pull in over 400K for the seventh straight week at 420K.  I asked the question a couple of weeks back: even if jobs are being created, they are still nowhere near keeping up with those filing new claims, indicating they have lost their jobs recently.  Ultimately enough new jobs are created, but in this economic ‘recovery’ jobs are scarce unless you talk government jobs or jobs that cost 10 years worth of salary to ‘create or save.’ 

None of this data likely rescues the market Thursday after the Wednesday ADP report, especially given the monthly jobs report due Friday.  The consensus is at 190K on the heels of the 244K in April.  Not sure it can pull that off, as anemic as that figure would be.

No, Thursday is reserved for finding near term support and licking the wounds inflicted in the whiplash from Tuesday’s gain to Wednesday’s pain.  The market momentum has to be downside given yet another failed breakout and the rather spectacular move downside.  The indices look ready to continue working in the range this time versus bouncing right back up as they did on this last move. 

In these trading range moves you watch for the stocks that hold support and play them when the overall market is ready to bounce.  You can play downside as we were doing on Wednesday, picking up some good moves on CAT and others for a run to the bottom of the range.  Many stocks are range-trading right now anyway, and if they hold their ranges then you can play them upside when they bottom.

Thing is, the indices are more or less back right in the middle of their ranges and either will turn once gain as they did last time or test lower toward the bottom of the range.  That leaves us somewhat in no man’s land right now for most of the market as the reverberations from the Wednesday selloff move through the market. 

We have to pick and choose specific stocks, but the one thing the action the past four weeks shows is that the upside is not a clear path what with the weakening economic data and QE2 scheduled to end.  That means there is no reason to chase any upside; be patient, let the plays develop, and let them come to us.  In the meantime we get some downside action in given the negative bias the repeated failed breakouts show is taking over near term.