Another Negative Outside Day
Stocks reversed their earlier gains as the consumer confidence reading showed another drop. The Conference Board Consumer Confidence Index continues to fall from the May level of 103.2 to the June reading of 98.7 (indexed to 100 in 1985) or trading at the lowest level since February 2021.
Traders blamed the intraday reversal on an unexpectedly sharp decline in the Expectations Index from 73.7 to 66.4. The Expectation Index 6-month gauge of consumer expectations for income, business, and the labor market has tumbled close to a decade low.
Based on the sharp market reversal, the market expects consumer spending to slow into the end of the year as the economy faces a potential recession due to the Fed's hikes rates and continued inflationary pressures.
Consumer discretionary and large-cap technology took the brunt of the selling as the quarterly rebalancing of portfolios may have forced money managers to act before the end of the week. Traders may have sold losing positions ahead of a long holiday weekend.
The bleak sentiment numbers continue to diverge from the still favorable corporate earnings outlooks from economists and analysts, suggesting the former is discounting an impending economic recession while the latter has not.
The 5-day-old oversold rally (+8.50%) showed signs of weakness, as evidenced by another negative outside day pattern in the S&P 500 Index today.
Three downtrend channels remain intact, signaling the dominant and prevailing trend remains down.
Although the 6/13/22 gap down has been filled, the failure to convincingly surge above the 6/10/22 gap down pattern suggests the recent 6/17/22 oversold rally may be fading.
The inability of SPX to surge above the 61.8% retracement (3,971) from the Jun 2022 decline, the Apr 2022 downtrend (4,171), and the 50-day ma (4,043.5) further warn of another selloff.
To confirm a sustainable intermediate-term recovery, SPX must breakout above the March 2022 downtrend (4,171) and preferably establish a higher high pattern by surging above the 6/2/22 reaction high (4,177.5).
Technical indicators are showing mixed readings. For instance, on 6/17/21, SPX recorded the highest volume day of the year.
Is the heavy volume a sign of a selling climax?
A positive divergence, if confirmed, on the MACD price momentum trend via a potential higher low pattern hints at a momentum low on 6/17/21.
The RSI overbought/oversold indicator has rallied from an oversold level (30) but continues to struggle to surpass the neutral zone (50).
The ability to surge above 50 improves the outlook for a sustainable intermediate-term recovery.
The advance minus decline trend remains in the Dec 2022 downtrend channel. It must clear the top of the downtrend channel to confirm expanding market breadth.
Despite the recent market actions and the mixed signals from technical indicators, SPX remains above its Fibonacci 38.2% retracement (3,815) from March 2020-January 2022 rally and the 6/17/22 reaction low (3,636.87).
Also, two recent gap ups on 6/24/22 (3,802.5-3,822) and 6/21/22 (3,708-3,715) act as initial supports on downturns. The ability to rebound here can extend the 6/17/22 oversold rally.
On the other hand, violation of 3,636.87 (6/17/22 reaction low) sets the stage for SPX decline to long-term support at the 50-61.8% retracements near 3,200-3,500.