Stocks Finish May With Bipolar Session

Stocks were all over the charts on Friday. After starting out in the red in the wake of a disappointing report on Personal Income and Outlays for April from the Bureau of Economic Analysis, a wildly better-than-expected Chicago Purchasing Managers’ Index for May and an unexpected increase in the University of Michigan Consumer Sentiment Index sent stocks climbing into positive territory. Suddenly, at exactly two o’clock, a massive sell-off began. Widespread commentary attributed the sell-off to MSCI index rebalancing at the end of the month.

The Dow Jones Industrial Average (DIA) dropped 208 points to finish Friday’s trading session at 15,115 for a 1.36 percent fall. The S&P 500 (SPY) finished Friday’s session with a 1.43 percent swoon to close at 1,630.

The Nasdaq 100 (QQQ) sank by exactly one percent to close at 2,981. The Russell 2000 (IWM) fell 1.04 percent to 984.

In other major markets, oil (USO) fell 1.92 percent to close at $32.61.

On London’s ICE Futures Europe Exchange, July futures for Brent crude oil declined by $2.01 (1.97 percent) to $100.18/bbl. (BNO).

June gold futures declined by $24.40 (1.73 percent) to $1,387.10 per ounce (GLD).

Transports backed out of their earlier gains along with the market’s afternoon reversal on Friday, with the Dow Jones Transportation Index (IYT) declining by 0.90 percent.

European stocks were back in the red on Friday after a report from Eurostat indicated that the unemployment rate in the Eurozone rose from 12.1 percent in March to 12.2 percent in April (VGK). The Euro STOXX 50 Index finished Friday’s trading session with a 1.06 percent drop to 2,769 – remaining above its 50-day moving average of 2,706. Its Relative Strength Index is 50.47 (FEZ).

The Japanese stock market rallied after the nation’s consumer price index fell 0.7 percent in April on a year-over-year basis, as expected by economists. “Core” CPI (excluding food and energy expenses) declined 0.6 percent, beating economists’ expectations of a 0.7 percent drop. The result signaled a bit of progress in the government’s efforts toward a 2-percent inflation target. The Nikkei 225 Stock Average jumped 1.37 percent to 13,774 (EWJ).

In China, stocks declined as investors were anxious about Saturday’s release of official government PMI data for May. Economists expect the reading to drop from April’s 50.6 to the borderline level of 50, which divides expansion from contraction The Shanghai Composite Index fell 0.73 percent to 2,300 (FXI). Hong Kong’s Hang Seng Index retreated by 0.41 percent to 22,392 (EWH).

Technical indicators reveal that the S&P 500 remains above its 50-day moving average of 1,599 after closing at 1,630 – as bears hope that we could be watching the formation of a head-and-shoulders pattern, which would signal a decline. Its Relative Strength Index dropped from 60.84 to 50.05. Although both the MACD and the signal line remain well above the zero line (which usually suggests the likelihood of a further advance) both have assumed downward trajectories with the MACD back below the signal line, suggesting the likelihood of a decline.

For the day, all sectors were solidly negative, with the healthcare and energy sectors taking the steepest falls – beyond two percent.

Consumer Discretionary (XLY): -1.13%

Technology: (XLK): -0.94%

Industrials (XLI): -0.96%

Materials: (XLB): -1.56%

Energy (XLE): -2.07%

Financials: (XLF): -1.64%

Utilities (XLU): -0.61%

Health Care: (XLV): -2.20%

Consumer Staples (XLP): -1.86%

Bottom line: Friday’s wild stock market swing can be expected to bring plenty of new theories about where the market is headed from here. Will bargain hunters storm in during the next week … or is this just the beginning of a more significant sell-off? Stay tuned …

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