Mid-Day Rally Fails

Another mid-day rally failed today and moved the market lower for the third consecutive day. The Nasdaq is now at a fresh seven month low and the Dow at a four month low. The Dow has managed to lose 6% since the last fed meeting. If the bearish trend continues the high-beta Russell and the benchmark S&P will soon join the previously mentioned indices at new monthly lows.

As I mentioned yesterday, there are a few bullish indicators starting to show up. I would still like to see all of the major indices move into oversold territory before placing any long trades, so I will stay disciplined until the time is right. After talking with a few traders today, it seems as though the majority of them are in cash right now waiting to gauge some type of directional move before they decide to step back in. Why guess, preserving capital is a disciplined and sustainable approach. I still think the market is in the midst of carving out a trading range for the fast approaching summer months. I would not be surprised to see a bounce over the next week (once we reach oversold) and then a continuation of the decline after options expiration.

As I have stated a few times over the past several weeks, the period immediately following June expiration is historically very weak. So, if we do get a bounce over the coming week be prepared. I am never one to place a trade solely on seasonality, but if the stars are aligned then the probablity of a succesful trade increases dramatically.

Daily Articles of Interest

• Bag of Hammers

• Continues to Widen

 RSI Wilder (5) for June 7, 2006

• SPY – 33.6 (neutral)
• DIA – 26.7 (oversold)
• QQQQ – 31.9 (neutral)
• IWM – 31.2 (neutral)