Stocks closed mixed on Friday after a week that saw the major averages down about 3-3.5% across the board. The economic data this past week was generally weak, particularly in the housing market. Existing home sales were reported to be down over 2% in May, and new home sales dropped a whopping 33% for the month. As a result, homebuilder stocks continued their recent declines.
On Friday, Congress passed the new financial regulatory bill, and according to many analysts, it does not hurt the banks too much. As a result, financial issues rallied and were among the stock market leaders on Friday. Other strong sectors included REITs, silver, gold and casino stocks.
As the market has declined in recent weeks, my list of potential candidates for intermediate moves to the upside has continued to shrink, so one of the characteristics I look for is proximity to their 52 week highs. Many of these high momentum stocks have pulled back significantly from their highs and must form new bases before going higher.
Another key data point this week with the employment report coming out on Friday. More disappointment here could mean more weakness for this market. Technical analysts and traders are fixated on the 1040 level in the S&P 500. A break below that would suggest a drop to at least 950, and the breaking of a major head and shoulders formation.
Stay Tuned!
Scott Cole
www.kungfutrader.com
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