Posted 07:00 CST
Equity Index Update
Tuesday May 16, 2006
The index markets staged a late session recovery to settle moderately higher in the large cap contracts - SP and DJIA. The ND, Midcap and Russell 2000 finished with moderate losses as sellers continue to focus on selling the momentum issues. It is worth noting that in the past three trading sessions, the Midcap 400 and Russell 2000 futures contracts have both dropped around -4.8%. Typically such velocity based selling runs dry over the next few sessions as players digest the move...I would normally anticipate this pattern to continue - however, given the release of PPI today and CPI tomorrow, there is a pretty good chance that these markets will not find stability until sometime next week.
The breadth readings improved yesterday in the SPX and NDX, particularly in their top weighted issues. Yet, the damage that was done from the previous two sessions remains overhead and yesterday acted like nothing more than a quiet short covering bounce off the trading lows. Over the past three years we have seen this pattern of a sharp index sell off, followed by a consolidation, then a rally to new highs. Is this time different? Only time will tell, however, with the breakdown in the NDX and the nervousness in the momentum sectors it certainly seems as though the longs are fearful of losing profits at this juncture. Typically, these type of situations have a way of snowballing into something larger...remember, since this bull move began in spring of 2003, the Russell 2000 has had a -10% correction each year. Another -5% from the current levels would produce what some would say is needed for continued longer term advancement.
I have listed 2 charts today, one of the NDX cumulative breadth for 2006, the other for the SPX's top 20 weighted issues cumulative breadth. Interestingly, the top 20 SPX issues have held serve thus far above the yearly lows...is it enough to produce a solid bounce?
Good Trading to all,
Brad
Equity Index Update
Tuesday May 16, 2006
The index markets staged a late session recovery to settle moderately higher in the large cap contracts - SP and DJIA. The ND, Midcap and Russell 2000 finished with moderate losses as sellers continue to focus on selling the momentum issues. It is worth noting that in the past three trading sessions, the Midcap 400 and Russell 2000 futures contracts have both dropped around -4.8%. Typically such velocity based selling runs dry over the next few sessions as players digest the move...I would normally anticipate this pattern to continue - however, given the release of PPI today and CPI tomorrow, there is a pretty good chance that these markets will not find stability until sometime next week.
The breadth readings improved yesterday in the SPX and NDX, particularly in their top weighted issues. Yet, the damage that was done from the previous two sessions remains overhead and yesterday acted like nothing more than a quiet short covering bounce off the trading lows. Over the past three years we have seen this pattern of a sharp index sell off, followed by a consolidation, then a rally to new highs. Is this time different? Only time will tell, however, with the breakdown in the NDX and the nervousness in the momentum sectors it certainly seems as though the longs are fearful of losing profits at this juncture. Typically, these type of situations have a way of snowballing into something larger...remember, since this bull move began in spring of 2003, the Russell 2000 has had a -10% correction each year. Another -5% from the current levels would produce what some would say is needed for continued longer term advancement.
I have listed 2 charts today, one of the NDX cumulative breadth for 2006, the other for the SPX's top 20 weighted issues cumulative breadth. Interestingly, the top 20 SPX issues have held serve thus far above the yearly lows...is it enough to produce a solid bounce?
Good Trading to all,
Brad