For the second time in as many days, stocks skidded lower in broad based selling. All five major indices closed in the red, with higher beta issues leading the decline. The Nasdaq, S&P MidCap 400 and small-cap Russell 2000 plunged 2.0%, 1.8% and 1.7% respectively. The S&P 500 slid 1.6%, while the Dow Jones Industrial Average managed to keep losses at 1.1%.
As might be expected following Friday’s Russell rebalancing, turnover dropped markedly on Monday. Volume on the NYSE slid by 19.5% and on the Nasdaq by a sizeable 34.5%. However, declining volume overpowered advancing volume by a ratio of 8.1 to 1 on the NYSE and by a ratio of 6.1 to 1 on the Nasdaq. Due to the light volume, the market avoided distribution on Monday, but the negative price action and breadth of the selling certainly does not bode well for market bulls.
Since rallying above its 20-day EMA on June the 21st, the Direxion Daily Gold Miners 3x Bear ETF (NYSEARCA:DUST) has been consolidating along this key mark. If DUST can form either a reversal candle (see pink candlestick) or an “inside” candlestick (see blue candlestick), then it could present a buying opportunity above the three day high of $50.25. We will be monitoring DUST closely for a possible long entry.
All of our open positions gained ground yesterday and still appear to have more upside. We are raising the stop on one of our open positions. Details are posted in the open positions section of the newsletter. The breadth of Monday’s selling was significant. Of the one hundred and seven industry groups that we track, one hundred and four of them closed lower on the session. Further, over forty sectors ended the day down by more than two percent. We would have liked to have seen higher volume during yesterday’s selloff, as this would have placed a more definitive “stamp” on the bearish price action. Nonetheless, the market is giving little sign that the selling is ready to subside.