200 Day Test
For those that have read my GMM posts over the last few months, you may have picked up on my skepticism regarding the rally stocks embarked on since the middle of March. Yes, prices have moved up aggressively but without the volume characteristics generally associated with a recovery.
More recently I encouraged readers to watch the action of major indices around their 200 day moving average. Take a look at the charts below. You can see the S&P 500 (as represented by the exchange traded fund: SPY) has fallen well below its 200 day moving average (red line). The Nasdaq 100 (as represented by the exchange traded fund: QQQQ) has faired better only testing its 200 day moving average 3 times since the middle of May. It closed on that line today.
With the technical weakness of major U.S. stock indexes, combined with ongoing credit market issues (see April 29th & May 23rd posts) and deteriorating economic conditions (unemployment spiked up to 5.5% in May), the most natural path for U.S. stock indexes near term appears to be down.
Some sectors have weathered the current U.S. weakness better than others and I would not be surprised if it takes a more selective investment approach to make money in this market.