May 6 Reversal Stock Trading Update

May 6, 2014: 2:06 PM CST

Today’s update reveals a reversal and breakdown market trending down against resistance.

Let’s take a look at what’s happened, what levels are important now, and of course what message Sector Breadth is sending.

The 1,875 index level was the key support or inflection level that held price up ahead of the mid-day breakdown.

The initial gap down against resistance (1,885) set the stage for a bearish session that later devolved into a strong Trend Day Down (see my “Compilation of 21 Posts on Trend Days” for additional information).

At this point, we’re monitoring price for a potential closing rally or retracement up potentially off the 1,870 level.  Note the dual divergence picture that suggests that 1,870 is a key support level into the close.

It shouldn’t be a surprise that Sector Breadth is sending a bearish message – but it’s not completely bearish:

Yes, we expect to see strength in Health Care and Utilities on a bearish or sell session, but we continue to see strength in Energy which has been a recent trend.

Surprisingly, we see some strength in Materials and Industrials and weakness in Staples (surprising) and Financials (not surprising on a down day).

We can take it a step further and highlight our top intraday Energy Stocks (the strongest sector of the day):

A quick scan shows Anadarko (APC) and EOG Resources (EOG) are the strongest stocks in the strongest sector at the moment.

Similarly, we can see relative weakness in AIG and E-Trade Financial (ETFC) as the weakest stocks in the weakest sector today.

Bank of America (BAC) continues its slide (see my prior update on the likely trend reversal and breakdown pathway for BAC).

Corey Rosenbloom, CMT
Afraid to Trade.com

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Corey’s book The Complete Trading Course (Wiley Finance) is now available along with the newly released Profiting from the Life Cycle of a Stock Trend presentation (also from Wiley).

1 Comment

One Response to “May 6 Reversal Stock Trading Update”

  1. theyenguy Says:

    Corey, thanks for all your posts over the years. We are entering a new era. Inflationism has turned to destructionism.

    On May 6, 2014, Investors commenced the deleveraging and derisking process in earnest, as the currency traders drove the $US Dollar, $USD, to a new 2014 low of 79.15.

    The US Dollar, $USD, traded by the 200% ETF, UUP, fell vertically lower at open, with the result that the Major World Currencies, DBV, traded to a rally high, led by the British Pound Sterling, FXB, and the Australian Dollar, FXA, which stimulated Australia, EWA, to trade higher. The Euro, FXE, sprang higher to close at 137.52. Emerging Market Currencies, CEW, traded to a new rally high. The chart of the US Dollar, $USD, closed strongly lower at 79.15.

    While Aggregate Credit, AGG, traded unchanged at its rally high, junk Bonds, JNK, Emerging Market Local Currency Bonds, EMLC, International Corporate Bonds, PICB, and World Government Bonds, BWX, traded to new rally highs. The 10 Year US Government Note, TLT, traded slightly higher, but closed below its recent rally high, as the Benchmark Interest Rate, ^TNX, closed at 2.6%.

    The death of credit, and the pivot from the experience of investment choice into that of debt servitude, which commenced in April 2014, as the world central banks passed the rubicon of sound monetary policy and turned “money good” investments, bad, is seen in Global Financials, IXG, trading lower, intensifying as the National Bank of Greece, NBG, led Greece, GREK, as well as the Regional Banks, KRE, the Too Big To Fail Banks, RWW, and the Stockbrokers, IAI, led the US Small Caps, IWM, in particular the Small Cap Pure Growth, RZG, US Infrasturcture, PKB, Metal Manufacturing, XME, Nasdaq Large Caps, QQQ, and Retail, XRT, lower.

    Now, all fiat equity investments are following Global Financials, IXG, in trading lower. World Stocks, VT, Nation Investment, EFA, Small Cap Nation Investment, SCZ, New York Composite, NYC, and Dividends Excluding Financials, DTN, as well as the Defensive, DEF, Utilities, PUI, Consumer Staples, KXI, International Energy, IPW, Energy Production, XOP, and Real Estate, IYR, are commencing their fall lower into the Pit of Financial Abandon on the failure of trust in the world central banks monetary authority to stimulate ongoing investment gain, as well as global economic growth; this as Zero Hedge posts Global Manufacturing PMI Plunges To 6-month lows.