Today's decline puts two-weeks of stock market progress in question

06/22/2010 5:35 pm EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

Oh, pigs whiskers! What a terrible day on the stock market.

The point drop wasn’t all that much—149 on the Dow Jones Industrial Average and 18 on the Standard & Poor’s 500. (At least not by recent standards.) And the percentage loss while painful—1.4% and 1.6% on the two indexes, respectively—wasn’t terrifying.

But the decline came just as the market seemed like it was about to shake off the downward trend that set in from the April 23 high. Stocks even looked like they might be on the verge of a small but still profitable summer rally.

But the retreat on June 22 puts all that progress at peril. Instead of breaking out to a new range that might have carried them to 1140 or even 1150, stocks turned south at the first challenge near 1120 on the S&P 500. And then they crumbled until they fell back through the 1108 level that they had struggled so hard to surmount and finally finished the day below 1100 at 1095.

None of this  means that stocks have given up on any chance of a summer rally and that investors are doomed to suffer as the market falls back to 1060 or 1050. Technical analysis isn’t fate.

But technical analysis is a good tool for reading investor psychology and right now it’s not saying anything very positive.

The U.S. market looks like it’s moving to price in a weaker than expected economy—at least that’s how I read declines in homebuilding stocks, retail stocks, and consumer discretionary stocks.

If you believe that the economy is going to be weaker than expected, you look to the bond market for safety and income—and Treasury bonds did well today—and you wait to buy stocks until you see either lower prices or evidence that the economy is doing better than you expected.

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