- Market in great position to bounce, gets a continental push, then once again, cannot hold the move.
- Germany knuckles under and Greece gets a bailout. Question is, will Greek voters take it?
- June preliminary Michigan Sentiment falls more than expected.
- May LEI doubles expectations, but the LEI is not that leading.
- More China stats showing its economy is struggling.
- Selling appears pervasive, suggesting the economy is worse than many expect.
- Market still set to bounce but not expecting any upside breakout when it does.

MARKET SUMMARY

Stocks ready to go, get the catalyst, cannot hold the move yet again.

The market was perfectly set to move higher. It was in great position with the SP500 at its 200 day EMA and NASDAQ at its March low. It got a continental push, so to speak, from the $170B “final” (as they call it) bailout of Greece. Germany had to knuckle under and agree with respect to some bond holders, but they did it. France got its way, and things looked pretty good from the start.

Futures were up on the news. Everyone was happy that Greece was getting its final bailout, so the stage was set. Stocks indices were at the right place. There was a trigger and stocks started to the upside. Once again, however, they could not hold it. They could not even hold a one-day rally, so to speak, on Friday. Why do I say that? They started nicely higher. NASDAQ gapped back above its 200 day EMA. It just could not hold the move, and it reversed and closed lower. Indeed, it was at a closing low for this pullback, eclipsing the March low. It was not the best day for stocks. Even SP500 rallied. It managed to hold a 0.3% gain but it tapped its 10 day EMA on the high and faded back. Not a lot of strength on the day.

I cannot call it a total washout. SP500 finished positive as did the SP600 and the Dow. NASDAQ, -0.3%; SP500, +0.3%; Dow, +0.36%; SP600, +0.04%; SOX, -1.5%. Not a great day. Stocks started higher and closed off the high. Again, not a total washout because some were higher. It was, after all, quadruple expiration Friday which often leads to volatility. There was also the SP500 rebalance after the close to get things ginned up. There was going to be a lot of back and forth anyway. I will just put it in that light, and we might see a new rally attempt next week.

Indeed, after things settle down, it very much could do that because there has been no real change. The indices are still at the same place they were on Thursday. They are still oversold, and there is actually some decent news with the bailout. There was also the May Leading Economic Indicators in good shape. They doubled up expectations. There are some positives out there. It could still see the move higher, but the selling is pervasive. On Wednesday the market could not find any footing.

On Thursday the SP500 held and tried to rally. It did bounce off the lows, but it never got great footing. We had the rally on Friday, and it faded back. Not able to hold that move. It is rather discouraging action when there are reasons to rally (you would think) but stocks are unable to hold the move. They have the opportunity; there is the setup at the prior support. There is reason, whether it is the Greek bailout, Leading Economic Indicators, or maybe some good earnings. They still cannot seem to keep the move going. Indeed, some important stocks gapped and then reversed on Friday.

AAPL gapped and reversed, and it is trying to break down through its trading range. FFIV continued the dive through the bottom of its range. NFLX did not cave. It can still go higher, but it was a disappointing session. That is the way a lot of investors and traders feel about the market right now. They are getting somewhat exasperated. It keeps looking like it will bounce, but then it does not. That definitely tells us something about what is going on. I talked a lot about the economic issues. There is still a lot of encouraging commentary about this being just a short-term slowdown. They say things will improve just as they did after last summer. Yesterday I said that this is not last summer. This is a top versus a base. That seems pretty fundamental, but when people get in a certain mindset, sometimes it is hard to shake them out of it.

There is the base an inverted head and shoulders and there is a top. It is different. We have a slowing economy. Last summer we had one that was still trying to pick up. After all, we had 3% growth in Q4 triggered by QE II. Now there may not be any more Quantitative Easing. The economy has been slowing down since day one of 2011. This past week there was more evidence of that occurring when the Philly Fed slipped into contraction itself, the second region to do so.

Thus, it is not a great story for the stock market or our economy down the road. Growth areas are lagging. The market cannot seem to get any real traction even when it has the reason to do so. As I said, it had the opportunity and the trigger, but it cannot get any traction. This is really evidence that there is much more of a problem with the economy. Many have this idea that we will snap out of it as we did last summer. That may be absolutely wrong. The growth indices, NASDAQ and the small caps, have been clearly lagging this last move. They are in much worse shape than the SP500, which is populated more by stocks that benefit from the export economy.

While there was no washout on Friday, it did not mean that the market would reverse. It is very discouraging. We will get a rebound at some point. The market is oversold, and markets give rebounds even if they are heading lower overall. We will get an oversold bounce out of this, but it just reinforces my belief that it will only be an oversold bounce. It may not be as solid as we wanted it to be. It may not come close to the February peak and set that right shoulder.

That said, I want to give a big caveat. Look for change when most traders start to get discouraged. I have to admit, it has been frustrating this week. The market will try to move, and it throws it right back in your face. That is how these markets work. Keep taking the good risk/reward plays when they are there. If they work, then they work; if not, you get out of dodge. I still think we can definitely get an oversold bounce from this selling. The question is where it moves. The February peak may be out of the picture. Early April peak is a maybe, but that is close to the February peak. We have to start looking mid-range, something along the mid-April low. There is a gap up point from late March in that area. Looking back in late February, that is roughly where it held on a closing basis moving into early March as well.

The sights for the upside have to be truncated. The quality of the move may not be that the solid. Frankly, given the action, that is what you should expect. As I said, moves often occur when people get very discouraged. Keep an eye out. We will still keep looking for those good plays. They are still basically in the same place they were on Friday with a few notable exceptions such as AAPL and others that have had some problems. We will watch for a bounce. Overall we do not expect that bounce to succeed and even come close to a new high. We will use the bounce for short-term upside gains. We will ride some of our upside positions back up where we can exit them if they cannot continue and they start to falter. Then we will look at downside plays yet again after that setup.

MONDAY

Next week brings more economic data. Existing Home Sales on Tuesday will be important. We will have to FOMC rate decision, a two-day meeting, on Wednesday. What will it tell us? It may talk a bit more about removal of stimulus, that things are getting better, and no QE II. It may not get in anywhere near that much detail. They definitely will not make any serious statements that will change what they have said of late. With that in mind, we still have a market that looks like it could bounce. Again, the SP500 and the Dow looked fine, able to bounce. If they can, they will lead the market in a recovery move.

The selling seems pervasive. It seems pernicious, and it does not want to let go. Thus any bounce is that we have is likely to be up to a prior nearer-term resistance versus getting back up to that February peak and making that symmetrical head and shoulders pattern. It may do it. That would be a great run for our upside plays. If it does, we will take it. We have taken some upside positions, and some of them have been thrown back in our faces. Others that we have carried have been thrown at us, finally breaking support after it looked like they would hold up just fine.

There is erosion of leadership and erosion of quality stocks. That is not a good indication for the market overall. We are not looking for a breakout in any bounce we get. We are looking for some kind of move to the upside that gives us a chance to exit some upside plays and make some money on other short-term upside plays. Then we will pick up more to the downside. We made some really good money on our downside trades, and we may still make money on those if this bounce fails. If NASDAQ, SOX, and SP600 went out and are negatives, then we could definitely see more selling. You also have to look at SOX it looks like it is oversold and wants to bounce. The small caps look like they want to sell, but they will follow along to the upside a bit before they rotate down.

That leaves us back where we have been. We are looking for that bounce, and at least the indices are still at support and still in position to make the bounce. That will give us better exit points and a little upside profit. Then we can look for some more downside plays. I hate to be negative about the market. You can be negative or just say it is going to happen and it goes down. Then we use it to make money that way, playing the put options to the downside. The really discouraging part is the negative economy and how the stimulus and the hundreds of billions we spent on it have not worked. It has not created any jobs. People are still suffering, and now we will have inflation. It will be the misery index for the 70′s all over again, in my opinion.

That is so discouraging. After going through those 10 years, I never thought we would have to do it again in my lifetime. I thought we had learned the lesson. After that came the boom started by the Reagan reduction of regulation and encouragement of capital investment in the US. It was fostered by Clinton as he cut the capital gains tax and stayed out of the way of the economy, trying not to do too much to it or create too many new programs. It seems like we have forgotten what got us here. In other words, we are not dancing with who brung us as Darrel Royal, football coach of Texas used to say. We got to this point, and now we have left them and are looking for something better. As is often the case, you end up settling for something worse. You can get a lot of promises. You can be beguiled out there by grand words about how things need to change, but we broke away from Europe for a reason. That was to set up a government that would allow us to pursue individual greatness. It worked very well while we followed the blueprint. We have strayed and we see the results.

It is beyond me why we would want to go back where we came from when we know what that entails. Hopefully we will wake up. Hopefully we will do what needs to be done before it’s too late. Then our children and grandchildren can live in a place where they can start their own businesses, make plenty of great money, raise their standard of living, and help people around the world. I will get off my soapbox now because I did digress.