The S&P 500 (SPX) fell through the 4,080 level Thursday, and it was all downhill from there, states Jon Markman, editor of Strategic Advantage.
The selling came fast and furious as bears piled into new short positions. The benchmark index closed at 4,017, a loss of 2.4%.
Volume was light, yet that does not matter. Bears have wrestled control of the tape away from bulls, and now they only have two hurdles remaining before they can start the next big leg lower. The first will come today with the Consumer Price Index. As long as that report shows inflation has not cooled off dramatically, I expect bears to pile on even more.
The other event to watch is the Federal Open Market Committee meeting next Wednesday. Any time the Fed meets, traders are certain to be anxious.
The pressure is on bulls to turn the tape higher. They have lost support for the S&P 500 at 4,080. That level is now resistance. And, as I mentioned earlier in the week, there is no important support until 3,810, the May low. That is definitely in play.
SA TradeView: Our ProShares UltraShort S&P 500 (SDS) position gained 4.75% Thursday to $45.55. The position was closed at our $45.30 target. Cancel the stop.
If the market does not reverse higher this morning on the CPI data, it is our intention to move back into this position. I will post a new update.
The Upshot
The Dow (DJI) fell 1.9% to 32,272.79, and the Nasdaq (NDX) was 2.8% lower at 11,754.23. All sectors posted losses, led by communication services and technology. The US ten-year yield climbed 1.8 basis points to 3.05%. West Texas Intermediate crude oil futures dropped $0.93 to $121.18 per barrel.
Breadth favored decliners seven-one, and there were 35 new highs vs 238 new lows. Big caps on the new high list included Devon Energy (DVN), Continental Resources (CLR), HF Sinclair (DINO), Penske Automotive Group (PAG), and PDC Energy (PDCE).
The May CPI report, due today, is predicted to show a 0.7% increase after a 0.3% gain the month prior. Substantial gains are pegged for gas and food, excluding which a 0.5% increase is penciled in for the core index. Both sets of data are expected to underscore the inability of the Federal Reserve to stifle inflationary pressures despite recent interest rate increases.
Since inflation risks are likely to worsen, Commerzbank economists now expect a rate hike of 50 basis points in September versus their previous projection of 25 basis points.
In other economic news, initial jobless claims increased by 27,000 to 229,000 in the week ended June fourth, lifting the four-week moving average by 8,000 to 215,000, an eighth increase in the last nine weeks. Insured claims were unchanged at 1.31 million, tying the 53-year record low set in the previous week.
In company news, one of our old favorites, NXP Semiconductors (NXPI), closed 4% higher, the top gainer on the S&P 500 and the Nasdaq 100, on reports that it is an acquisition target of Samsung. Asian Tech Press reported Lee Jae-Yong, vice chairman of Samsung Electronics, plans to discuss the possibility of acquiring the Dutch chip maker during a visit to Europe.
Meta Platforms (META) shares were down 6.4%, among the steepest decliners on the Nasdaq 100, as the tech giant began trading under its new stock ticker. A Bloomberg News reported Thursday, citing an unidentified source, that Meta halted the development of a smartwatch, which had been in the development phase for at least two years and was targeted to launch in spring 2023, according to the report.
