Bears took back control, and now bulls are in real trouble, says Jon Markman, editor of Strategic Advantage.
Our recommended trade in a double-inverse S&P 500 fund helped members take advantage by rising 4%.…Meanwhile, our Counterpoint Options members scored a much bigger 54.5% gain after a one-day hold of SPDR S&P 500 (SPY) July $385 puts.
Observations: The S&P 500 opened sharply higher Tuesday, and bears promptly reloaded short positions, as we forecast on Monday. The benchmark index traded all the way to 3,945 in the morning, before crashing to 3,822, a loss of 2%.
I’m not surprised bears jumped all over the early rally. The benchmark gained nearly 8% from the June 17 lows. It was the kind of violent advance that is typical of bear market rallies.
The move higher was also more about short-covering by bears than bulls bargain-hunting. When the onus shifted fully to bulls to continue the advance, they promptly bailed.
I understand why. There is no leadership. Every stock sector, with the exception of healthcare, is mired in a downdraft. Sustained rallies are impossible without multiple leadership groups.
The weaker close on Tuesday sets up a world of pain for bulls. There is only minor support for the S&P at 3,810. If that level fails, the June 17 low at 3,637 is definitely in play. That decline could happen before the end of the week. Critical resistance is now 3,990.
SA Tradeview: The ProShares UltraShort S&P 500 (SDS) closed at $49.41 Tuesday, a gain of 4.0%. With bears now reloading short positions, the tape could get ugly for bulls in a hurry.
Current Position: Long SDS from $48.70. Target is $57.10; new stop is $45.40 (after 11:00 am ET).
The News: The Dow (DJI) slid 1.6% to 30,946.99 and the Nasdaq (IXIC) fell 3% to 11,181.54.
Consumer discretionary, technology, and communication services led decliners, with energy the only sector managing to post gains.
Breadth favored decliner three-one and there were 225 new lows vs 38 new highs. The leaders were Humana (HUM), WP Carey (WPC), Molson Coors Beverage (TAP), United Therapeutics (UTHR), and Sanderson Farms (SAFM). That’s very defensive leadership.
The Conference Board's measure of consumer confidence fell to 98.7 in June from 103.2 in May, below the 100 expected in a survey compiled by Bloomberg and the lowest level since February 2021. The Board's inflation expectations index rose to 8% from 7.5%, the highest since the series began in 1987.
"Regardless of the levels, the direction of inflation expectations is certainly important, and it is moving in the wrong direction for the Fed," Jefferies economists Thomas Simons and Aneta Markowska said in a research note Tuesday.
The US ten-year yield fell two basis points to 3.18%. West Texas Intermediate crude oil futures advanced 1.9% to $111.69 per barrel.
In economic news, the Case-Shiller National Home Price index rose by 2.1% in April before seasonal adjustment, following a 2.6% increase in March, indicating a deceleration could be setting in. The move compared with the 2% gain expected in a survey compiled by Bloomberg.
In company news, Nike (NKE) chief financial officer Matthew Friend said late Monday that the recent coronavirus bottlenecks in Greater China were the most widespread in the region since 2020, impacting over 100 cities. Even though the company beat fiscal fourth-quarter sales and earnings estimates, it flagged concerns related to the gross margin due partly to its business in China.
Shares dropped 7%, the worst performer on the Dow.
Meanwhile, China reportedly cut quarantine times for international travelers as it continues to ease Covid-19 restrictions. That sparked a rally in travel and tourism companies' shares. Las Vegas Sands (LVS) was among the top gainers on the S&P 500.
