Afternoon Sell-Off Stymies Stock Market Rally's Follow-Through

By: Harry_Boxer

The stock market indices started off the day with a bang, gapped up, pulled back, tested support successfully, and then really had a strong morning run that took them to the session highs above 1820 on the Nasdaq 100 and near 1077 on the S&P 500.

They began a slow pullback late in the morning that accelerated in the early afternoon and really took the indices sharply lower, with the NDX moving all the way back from 1823 to the 1772 area to test yesterday's low before a very late bounce. But it pretty much closed near the session lows. The S&P 500 acted similarly, actually a little bit stronger in the morning, but rolled over from 1077 to the 1052 area, before bouncing near 1056.

Nevertheless, the negative session does not augur well for the indices and is a blow to the bulls' chance of an extension of a rally. Absolutely a miserable follow-through with yesterday's late move.

Net on the day, the Dow was down 40.73, below 9900 at 9899.25, the S&P 500 down 6.31 at 1055.69, and the Nasdaq 100 down 16.78 at 1778.92, 45 points off its high.

Advance-declines were just slightly positive because the late afternoon sell-off didn't quite bright them into negative territory, by less than 100 issues, however, on the New York Stock Exchange, but declining volume over advancing volume was 4 to 3 negative. Total volume was 1 1/2 billion. Nasdaq did slip into the negative column on advance-declines by about 130 issues, but by about 3 to 2 negative declining volume over advancing volume with about 2 1/4 billion traded today.

Our Charts of the Day:

Tonight we look at some Boxer Shorts, starting with Bio-Rad Laboratories, Inc. (BIO), which had a big move up from March of last year when it was down in the 50 range to over 120. It came down suddenly and thrust to the downside hard in early May, bounced to a lower low, and now has formed a little bit of a declining channel. Today's action, down another 1.78, takes it below its lateral price support, and this stock could begin to fall away here. Initial target 78, secondary target around 70.

Diamond Offshore Drilling Inc. (DO), which had been hampered by the other drillers getting hammered, has rolled over, formed a bearish consolidation where we alerted you to the short in the high 80s. This stock has since dropped down to the mid-50s, and stair-stepped its way lower. Today it was up sharply in the morning up to 61, and closed at 57.09, up only 15 cents, a dramatic, negative reversal intra-day, which means it potentially could see some lower prices. I think all of the companies in this group are near the end, but we'll see.

MicroStrategy Inc. (MSTR) is topping, cracking, rallying back to resistance, but cannot get through it. It looks like the lateral resistance line near the declining topsline and moving average is starting to collapse. We could see something down in the low 60s, my next trading target.

WellPoint Inc. (WLP), which topped earlier this year, cracked early in May, formed a little bear flag in the 52.32 area. A new downtrend is under way as the moving averages have rolled over and it's headed south. A test of 45 may be forthcoming, which is our trading target.

Reviewing our Watchboard:

TheTechTrader.com board, as a result, was mixed but mostly lower. Leading the way on the downside, Google Inc. (GOOG) dropped 10.76 at 474.02, Apple Inc. (AAPL) lost 6.13 at 243.20, Cree Inc. (CREE) 1.22 at 60.24, Baidu Inc. (BIDU) 3.09 at 67.40, and Delcath Systems Inc. (DCTH) got hammered for more than two points, down 1.95 at 8.77.

Other point plus losers of note, both in the oil sector, were British Petroleum (BP), down 5.48 at 29.20, and Transocean Ltd. (RIG), off 3.75 at 42.58, as the gulf oil spill continues to pressure both BP and RIG.

The only point-plus gainer on our board was Dendreon Corp. (DNDN), snapping back 1.02 at 36.95.

Other gainers of note, the Direxion Daily Emrg Mkts Bear 3X Shares (EDZ) jumped 81 cents to 52.90, the Direxion Daily Large Cap Bear 3X Shares (BGZ) was up 22 cents to 17.28, and the Direxion Daily Financial Bear 3X Shares (FAZ) 36 cents to 16.91, which was about 1.25 off its low. There were sharp snapbacks on the ultra-shorts with the market falling sharply in the afternoon.

Stepping back and reviewing the hourly chart patterns, the indices were up in the morning, rolled over mid-day, and came down sharply at the end of the day to close not far off the pullback lows on the NDX and key support at that level as well.

We'll see what tomorrow brings, but certainly an ominous, negative day for the bulls today. They can't be happy with the lack of follow-through to the upside.

Good trading!

Harry

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