For all of the market bears struggling to have their overbought argument heard for so long, their wrangling was heard loud and clear again Thursday as stocks closed lower across the board for a third straight session.
With the Dow, S&P 500, and Nasdaq up 7.4% already this year, as of Wednesday's close, and recording nearly half of those gains during the historically disappointing month of May alone, another pullback was not all that surprising. That's especially accurate when the bears were armed with everything from soaring interest rates to rising oil prices and May same-store sales figures that were mixed at best after such a disappointing April.
The yield on the 10-year note finally eclipsing the psychological 5.00% level overnight for the first time since last August was the main catalyst setting the stage for another day of profit taking.
Rising interest rates are disconcerting for stocks since higher yields increase the safe-haven appeal of Treasuries and increase the costs of borrowing. That latter issue poses an added concern for the likes of private equity firms whose record pace of leveraged buyout activity has essentially not ruled out any company as a takeover candidate and has helped keep an underlying bid in equities.
Thursday the yield on the 10-year note soared 17 basis points (at its highs of 5.13%), resulting in the benchmark bond's worst one-day performance in more than three years.
After taking a mild breather Wednesday, the bond selling picked up steam after New Zealand unexpectedly raised its benchmark rate to 8.00%. That exacerbated nervousness among U.S. bond traders who have basically ruled out any chance of a rate cut in the U.S. this year. An up-tick in mortgage-related hedging later in session pulled the rug out from under Treasuries where they languished for the remainder.
Pimco's Bill Gross late in the day saying he is now a bear market manager after 25 years of being a bond bull was the final straw that exacerbated the sell-off in equities. Every index closed at session lows.
The Dow, S&P 500, and Nasdaq plunged 1.7% as widespread selling activity closed all 10 economic sectors sharply lower. Only four of 147 S&P industry groups closed in positive territory.
The S&P 400 MidCap Index (-2.1%) and Russell 2000 (-1.9%) fared even worse, which wasn't overly surprising since higher interest rates spark valuation concerns among growth stocks, greatly impacting the borrowing power of smaller and mid-size companies.
Market breadth was unquestionably bearish, as decliners outpaced advancers on the NYSE by a whopping 10-to-1 edge.
Trade system guidelines
(edited):
Only available to Newsletter Subscribers.
1.
CEG - Constellation Energy Group
| Entry Date |
Exit Date |
Position |
Entry Price |
Target Price |
Stop Price |
Max P/L |
| 06-08-07 |
|
Long |
Above 15min high |
Sell 1/2 once risk covered |
Below LOD at time of setup |
|
|
* Please Note: If the stock gaps down at the open do not enter the trade unless it trades above 82.91
|
2.
EQT - Equitable Resources
| Entry Date |
Exit Date |
Position |
Entry Price |
Target Price |
Stop Price |
Max P/L |
| 06-08-07 |
|
Long |
Above 15min high |
Sell 1/2 once risk covered |
Below LOD at time of setup |
|
|
* Please Note: If the stock gaps down at the open do not enter the trade unless it trades above 50.84
|
3.
NKE - NIKE
| Entry Date |
Exit Date |
Position |
Entry Price |
Target Price |
Stop Price |
Max P/L |
| 06-08-07 |
|
Long |
Above 15min high |
Sell 1/2 once risk covered |
Below LOD at time of setup |
|
|
* Please Note: If the stock gaps down at the open do not enter the trade unless it trades above 54.10
|
4.
GEF - Greif
| Entry Date |
Exit Date |
Position |
Entry Price |
Target Price |
Stop Price |
Max P/L |
| 06-08-07 |
|
Short |
Below 15 low |
Cover 1/2 once risk covered |
Above HOD at time of setup |
|
|
* Please Note: If the stock gaps up at the open do not enter the trade unless it trades below 54.81
|
BMC - BMC Software
| Entry Date |
Exit Date |
Position |
Entry Price |
Target Price |
Stop Price |
Max P/L |
|
|
Long |
Above 15min high |
Sell 1/2 once risk covered |
Below LOD at time of setup |
|
|
* did not setup
|
MLM - Martin Marietta Materials
| Entry Date |
Exit Date |
Position |
Entry Price |
Target Price |
Stop Price |
Max P/L |
| 06-07-07 |
06-07-07 |
Short |
153.98 |
Reached (151.78) |
Closed Above 153.98 |
up to + $2.49 per share (151.49) |
|
|
EWW - iShares MSCI Mexico Index Fund
| Entry Date |
Exit Date |
Position |
Entry Price |
Target Price |
Stop Price |
Max P/L |
| 06-07-07 |
|
Short |
61.38 |
Reached (60.08) |
Above 61.38 |
up to + $1.78 per share (59.60) |
|
|
SPW - SPX Corp
| Entry Date |
Exit Date |
Position |
Entry Price |
Target Price |
Stop Price |
Max P/L |
| 06-07-07 |
|
Short |
85.91 |
Reached (84.72) |
Above 85.91 |
up to + $2.08 per share (83.83) |
|
|
SID - Companhia Siderurgica Nacional
| Entry Date |
Exit Date |
Position |
Entry Price |
Target Price |
Stop Price |
Max P/L |
| 06-06-07 |
|
Short |
51.86 |
Reached (51.60) |
Above 51.72 |
up to + $2.84 per share (49.02) |
|
|
OKE - Oneok Inc
| Entry Date |
Exit Date |
Position |
Entry Price |
Target Price |
Stop Price |
Max P/L |
| 06-06-07 |
|
Short |
52.84 |
Reached (52.34) |
Above 51.88 |
up to + $3.09 per share (49.75) |
|
|
* Key
==============================
HOT = High of Trade.
LOT = Low of Trade.
HOD = High of day.
LOD = Low of day.
EOD = End of day.
PDC = Previous Day's Close.
S/R = Support/Resistance.
==============================
DISCLAIMER: Trading in securities may not be suitable for all individuals.
Consult your broker or other professional to determine your suitability.
The discussions provided by Day Trading It are for educational purposes
only and should not be taken as a recommendation to buy or sell the
referenced security. Past performance is not indicative of future results.
Please keep in mind that these picks are chosen up to 12 hours before the markets open. During this time conditions, which will effect entry and exit on the above listed ideas, may change.
