Sellers Rule The Markets Again

The final-hour rally saved us once again. The S&P 500 managed to breach the key 880 level by just a few cents and then reversed, and we rallied strongly into the finish.

The action was certainly ugly, but because of the tendency for last-hour games and the thinner holiday trading, the likelihood of a bounce rather than a complete collapse when we tested support was quite high.

While we might have held support today, things are getting much trickier going forward. We are doing technical damage with each one of these stabs lower. We might expect the first test of a key level to hold, but the chances of holding decrease each time a level is tested. These last-hour bounces are even more problematic because they are so manipulative. Many people feel they are a product of daily rebalancing of the ultra-ETFs, and I don't see any reason to think otherwise.

In any event, the holding of support, while a positive, isn't something we should be too optimistic about. We will have thin trading tomorrow in front of the holiday, and then the battle will intensify again next week. There are some cracks in the uptrend, and it's time, in the very near term, to start being more cautious.

Going into more detail - Emboldened by economic concerns, sellers took control of stocks and handed the major indices a marked loss. Though declines were deep and broad, stocks still finished off of their session lows... A sharp pullback by the U.S. dollar helped gold prices close 1.5% higher at $951.20 per ounce and oil prices pare their losses to settle pit trading with a 1.6% loss at $61.02 per barrel. The greenback's 0.8% slide took the dollar index to a four-month low and came as global investors showed concern about the U.S. economic outlook in the wake of Standard & Poor's decision to lower its outlook for the United Kingdom. Just yesterday the Fed lowered its outlook for U.S. economic growth... Worse-than-expected jobless claims supported the premise that economic conditions remain tenuous. Initial claims for the week ending May 16 totaled 631,000, while continuing claims climbed to a new record of 6.66 million... Treasuries took a pounding amid the economic concerns. The benchmark 10-year Note fell 43 ticks, which pushed its yield near 2009 highs. Disappointing buybacks by the Fed also provided a catalyst for the downward move by Treasuries; investors have expected that the Fed will be expanding the size of such repurchases... Participants largely dismissed a 1.0% increase in leading economic indicators for April even though the data was better than expected and marked the first increase in ten months... Financials (+0.2%) attempted to provide support to the broader market. They oscillated between positive and negative ground before finishing as the only sector to log a gain. Regional banks (-4.5%) were a heavy drag on the financial sector as FITB became the latest bank to come to market looking for capital in the wake of the government's stress tests. Fifth Third filed a $750 million common stock offering. Meanwhile, RF disappointed investors by pricing its previously announced offering markedly below recent averages... Losses were broad-based for the entire session. In the end, roughly 85% of the companies listed in the S&P 500 closed in the red. The S&P 500 did find some technical support as it encountered last week's lows... GM was one of only a handful of Dow components to log a gain. GM was supported by news the company has reached a labor contract deal with the United Auto Workers Union (UAW) and the Treasury, along with more reports indicating that GM's finance arm, GMAC, will receive $7 billion from the Treasury. Including this session's spike, shares of GM are up 77% week-to-date.