Some positive developments

The major indexes suffered another week of sharp losses as, once again, worries over the Fed and inflation stepped up. With the exception of a modest bounce on Friday, with the S&P 500 bouncing off of its 200-day moving average, the equities markets traded with an overall negative bias the entire week. In terms of sector performance, Commodity and classic Cyclical/Industrial names experienced the worst of the declines, which was likely the result of worries over a hawkish Fed crimping economic activity. It was difficult to find sectors that outperformed, as the overall decline was pretty broad-based in nature. In addition, volume remained heavy, which helped to confirm the decline.

While there was little doubt that market action was quite bearish in recent days, some positive developments did take place. Yields on the long end of the curve declined, while commodity prices fell dramatically. Furthermore, housing data continued to pile up, which suggested that the slowdown was gaining steam. Given these factors, it may take a little pressure off the Fed as far as raising interest rates. It's even quite possible that slowing housing demand could mean that inflation has already peaked for the cycle.

Other positive news was seen on the sentiment front, where the P/C ratio reached extreme levels. From a contrarian standpoint, this is bullish, as the public has been betting heavily on further declines. Also, several market oscillators have reached deeply oversold territory, which also often indicates that a short-term bottom could be in place.

Daily Pivot Points for 5-22-06

Please feel free to email me with any questions you might have, and have a great trading week!

Chris Curran started his trading career at the age of 22 with a national brokerage firm. He combines fundamental and technical analysis to get the big picture on the market. Chris has been trading for 15 years, starting full time in 1997, and has never had a losing year as a full-time trader.