Bad Day for Stocks

U.S. Stocks closed sharply lower today after a modest open to the upside. The culprit? Likely the existing home sales data that came out this morning, showing a 2.2% drop in sales in May. This was a bad number because there should have been a surge in sales from the contracts signed in March and April as the tax credit was set to expire. So, an actual drop in sales suggests that the real estate market is still soft. What a surprise! With no jobs being created, how would we expect a significant bounce in the market? The fact is, more declines are likely until this economy really starts to turn around.

Anyhow, the major averages lost anywhere from 0.8% in the case of the Nasdaq 100 to nearly 4% for the Dow Transports. Another culprit again was the Euro, which declined again, but not nearly as much as yesterday.

One big concern among technical analysts is that there is a big head and shoulders top forming on all of the major averages. Some technicians will try to forecast the move if the neck line is broken to the downside as the distance between the neck line and the top of the head. For the S&P 500, this would take the market down under 900. For the Dow Industrials, down to about 8,000.

You can bet that a decline of that magnitude will be forecasting higher unemployment and a double dip recession ahead. However, I am not convinced that we will see that kind of a drop in the market. While I remain cautious, if not bearish, I think the Democrats will do everything in their power to try and fend off a double dip recession to save their asses in November.

On another note, I mentioned yesterday that I did not generally like the overall action in Apple yesterday. Today, however, it bucked the overall market trend and closed higher, although it has formed an inside day on its chart. Keep an eye on Apple...if it fails up here, you can bet the overall market is in trouble.

Scott Cole
www.bestdaytradingstocks.com