Crunch Time For U.S. Stock Markets

So now it’s really crunch time for global stock market and ETF investors.  The major indexes are down six weeks in a row, the longest stretch for the Dow Jones Indus trials (NYSE: DIA) since 2002 and since 2008 for the S&P 500.  (NYSE: SPY)

Major fundamental problems have been exposed and we sit just above significant support levels that, if breached, will likely lead to lower lows ahead.

At Wall Street Sector Selector our Standard and Options portfolios logged nice gains this week and we feel comfortable with our inverse ETF and put option positions going forward into the week ahead.

On My Wall Street Radar


On a technical basis, the market has broken through significant support and now is on a “sell” signal with a downside price objective of 1160.  Next major support is at 1250 on the point and figure chart which corresponds closely to the widely watched 200 Day Moving Average at 1253 and the recent March lows of 1250.

The NASDAQ (NYSE: QQQ) is now negative for the year while the S&P hangs on to a slim gain of 1.1%. YTD.

A break below these levels would open the way for significant declines ahead and so, indeed, it is crunch time for the bulls to see if they can maintain these levels and the uptrend that has been in place now for more than 2 years.

The Economic View From 35,000 Feet

As mentioned, markets have declined for six weeks straight and the economic news remains grim.

Last week was relatively quiet with the Fed Beige book showing slowdowns in 4 regions and accelerating growth only in the Dallas region, while unemployment showed continuing deterioration in the weekly and continuing numbers.

Dr. Bernanke’s speech early in the week threw cold water on the hopes for more “free money” from the Federal Reserve for now in the form of quantitative easing that wraps up in two weeks and the battle over the debt ceiling gains new urgency as the calendar clicks towards the August 2nd deadline.

Congress is caught between a rock and a hard place now with the Republicans demanding spending cuts equal to raises in the debt ceiling and the Democrats wanting revenue increases while significant government spending cuts will add to the headwinds already facing an obviously slowing economy.

Republican talk of a “technical default” continues to be a high stakes game of chicken and so this drama will continue to play out as we head deeper into summer.

Robert Reich, Secretary of labour under President Clinton, offers his solutions to stimulate demand and certainly more demand is what we seem to need.

Investors aren’t waiting around to see how all this drama unfolds as Lip per reported that for the week ended June 8, U.S. equity funds had redemptions of more than $6 Billion while money market assets climbed $14 Billion.

Meanwhile the Greek tragedy continued to unfold as Germany and the European Central Bank went to war over how to resolve Greece’s problems, with Germany wanting private bondholder participation and the ECB opposing that and “haircuts” of any kind.  The markets don’t like the whole situation as the Greek 10 Year Bond now yields north of 16% and their Credit Default Swaps hover near record highs.

What It Means for Stock Market and ETF Investors

What this all means for investors is an increasingly treacherous environment with big picture disputes at home and abroad coming to a head within the next few weeks.

The Business and Financial News Week Ahead

Next week we see a raft of new economic news that will raise the stakes on “crunch time” and my friend, Jeffrey Hirsch from Stock Traders Almanac offers some interesting historical data on market performance during June options expiration week and the week after in his article, “June Option Expiration Week Soft and the Week After Terrible

Tuesday: May NFIB Small Business Index, May Retail Sales, May Producer Price Index, April Inventories

Wednesday: May Consumer Price Index, June Empire State Index, May Industrial Production, June Homebuilders Index

Thursday: Initial Unemployment Claims, Continuing Claims, May Housing Starts, June Philadelphia Fed

Friday: June Consumer Sentiment, May Leading Indicators

ETF Spotlight

Leaders: (NYSEArca: TLH) iShares 10-20 Year Treasury (NYSEArca: IEF) iShares 7-10 Year Treasury

Laggards: (NYSEArca: EWD) Sweden (NYSEArca: ITB) Home Construction

Wishing you a great weekend and week ahead,


Click here for more detailed analysis and charts and a special offer from Wall Street Sector Selector

Disclosure: Wall Street  Sector Selector actively trades a wide range of ETFs and positions can change at any time.

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