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Editor’s Note: Sam Collins will be on vacation?through June 25. Filling in for him?are two other top technical analysts, Chris Johnson and Jon Lewis.

The Sunday evening news that China would begin to let its yuan move more freely against the U.S. dollar kicked off a strong morning, but a gradual lack of support flowed away from the markets, as well as the benchmark indices surrendered their gains for the day and settled with losses.

While the yuan and dollar got most of the attention, weaker news in the technology sector and generally light trading volume contributed to the weakness as the marketplace approached a technically significant 50% retracement Fibonacci level.

All-in-all, the technical health of the current short-term rally remains intact as the number of stocks crossing into short-term bullish trends remains strong, improving the breadth of the rally.

As of Monday, there had been an additional 1,343 stocks that had been transitioning from short-term bearish patterns to short-term bullish. Simply put, this information supports the short-term bullish scenario as more businesses are now drawing buyers from the sidelines.

So what went wrong with the marketplace on Monday?

Nothing. That’s right, nothing was really wrong with the marketplace on Monday, from our perspective. A simple one- or two-day rest is healthy and need to keep the markets from reaching overbought situations. We’re expecting the marketplace to move greater through the week, with an increasing probability that we will see the S&P 500 (SPX) challenge the 1,150 mark.

The SPX fell to close the day at 1,113, within striking distance of support that we see as must hold. The must-hold level on the SPX is represented by the range identified in the chart below.

The SPX’s 200-day moving typical is holding at the 1,110 with round-numbered support at the 1,100 mark. The zone drawn by these two technically significant levels really should be considered support for the SPX. We will be adding bullish positions to our portfolio on strength in this support zone holding.

So where does this leave us? Expect the marketplace to try to challenge the support that is lying just below Monday’s close.

The morning trade will be influenced the two reports that are as a result of be released: May existing house sales (consensus 6.1 million) and April FHFA housing price index (March was 0.3%). We’re expecting the housing numbers to be a little weaker than expected, but the Street’s expectations are low, meaning that any in-line results really should fuel getting on the equities front.?

We’ll also be watching the dollar traded against the yuan and euro for direction from the international markets.

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Editor’s Note: Sam Collins will be on vacation?through June 25. Filling in for him?are two other top technical analysts, Chris Johnson and Jon Lewis.

In a normal marketplace, a two-day pullback in stocks is normal. In this marketplace ?- it may be a warnings shot across the bulls bow.?

The marketplace bowed to the sellers on Tuesday, as poor housing numbers set the tone for a negative day. The selling took out a few key technical levels that we’ll discuss in a moment. The negative action took all 10 major sectors lower, with energy (-2.7%), utilities (-2.5%) and industrials (-2.4%) the worst performers.

Similar to last week’s rally, Tuesday’s selling took place on light trading volume as the SPDR S&P 500 (NYSE: SPY) shares saw only 1 million shares change hands. The light-volume trading environment is something that traders will need to get used to as the economic calendar remains light until earnings season gets off to a start in a few weeks.

On the technical side, the S&P 500 (SPX) moved below three key technical marks.

First, the benchmark index’s 200-day moving typical. This trendline, currently at 1,111, has become one of the most widely watched trendlines lately, meaning that the drop below it (200-day) may draw the sellers back into the marketplace in force.

Second, the SPX moved below the psychologically important 1,100 level on Monday, making today’s marketplace action incredibly important for the bulls. A move back above 1,100 during today’s trading will prompt the technicians to break out some of the cash that has been sitting on the sidelines, especially as the quarter’s end draws near.

Finally, the SPX broke below its 10-day moving typical. This is the first move below this short-term trendline given that June 9. Once again, it will be key to see the bulls defend this trendline quickly in order to maintain the short-term bullish conditions that we have enjoyed for the last two weeks.

The CBOE Volatility Index (VIX) popped back to life, jumping more than 8% to an interesting technical juncture. The fear index will start trading this morning just above 27, a hair below the intersection of its downtrending 10-day moving typical and its upward trending 50-day.

What does that mean? Well, it makes the 27 mark much more likely to be a major inflection point for the VIX, meaning that the marketplace will also see a large move based on the VIX’s next move.

After the bell on Tuesday, Adobe Systems Incorporated (NASDAQ: ADBE) and Jabil Circuit, Inc. (NYSE: JBL) provided positive earnings results and guidance, which really should provide a little fodder for the technology bulls. The PowerShares QQQ Trust (NASDAQ: QQQQ) is trading just above its $46 level and its 10-day moving typical. (Are you picking up a theme?) Today’s trading will get the boost it needs from buyers as long as these levels hold.

So what’s the rub? Today is what we often refer to as a must win technical day. The SPX will trade back to its 1,050 mark unless today’s trading fills the gap from yesterday’s losses.?

The light trading volume combined with the vacuum of economic data will create a vortex lower unless the current technical levels we’ve identified this morning hold true. Any lack of trading strength will act as a signal to begin getting put options to leverage what would be a third trip to the recent bottoms.?

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The marketplace couldn’t be more fickle during the last few trading days as the bulls and bears are locked in a low-volatility game of chicken. The benchmark indices finished the day mixed as the Dow Jones Industrial Typical (DJI) finished greater, as well as the Nasdaq (NASD) and S&P 500 (SPX) ended the day lower.

As has been the case all week, the major sectors had been mixed, with five ending up and five down. The strongest sectors, relatively speaking, had been the telecom (+0.6%), consumer staples (+0.3%) and materials (+0.1%).

As sad as it is, the FOMC meeting results was the best chance that the marketplace had to grab a catalyst to rally today, although we will see some actionable reports tomorrow before the open as we’ll get a look at durable goods orders (consensus expects -1.3%), durable goods orders ex-transportation (consensus expects 1.3%), initial unemployment claims (consensus expects 460,000) and continuing unemployment claims (consensus expects 458,000).?

With marketplace sentiment taking a negative tone, a mix of in-line reports would be enough to get this marketplace to poke back above the critical technicals it recently dipped below. In case that’s not the outcome tomorrow, let’s look at the likely downside scenario.

The SPX failed to move back above the psychologically and technically significant 1,100 point today, increasing the odds that a trip back to the 1,050 level (some 12% below today’s close) may be in the cards. These odds are now on the rise as a few of the pre-earnings season reports are hitting the tape, with little to be bullish on.

After Wednesday’s close, Bed Bath & Beyond Inc. (NASDAQ: BBBY), Herman Miller, Inc. (NASDAQ: MLHR) and Paychex, Inc. (NASDAQ: PAYX) had been trading lower on earnings results. Not a good start to the pre-season reports. We expect to see an increase in the pre-season announcements next week, adding to the volume and volatility in the marketplace.

OK, so where does this marketplace appear to be headed? Well, the downside risks are now growing, which means that the options traders in the crowd ought to be considering some put protection.?

What do I mean by that? Well, by purchasing puts on the SPDR S&P 500 (NYSE: SPY), PowerShares QQQ Trust (NASDAQ: QQQQ) or iShares Russell 2000 Index (NYSE: IWM) shares we can effectively hedge a portfolio against marketplace declines over the brief run.

In today’s case, I would suggest that options traders look to leverage the potential 10% decline in the S&P 500 over the next few weeks by purchasing the SPY July 107 Puts, which closed the trading session on Wednesday at $1.84. This option would provide a degree of leveraged protection against a move by the SPX to the 1,050 or lower levels.

We’re starting to prepare for the worst, while trying to expect something much better. On that last point, it is not out of the probable outcomes that we could see the SPX break back above the 1,100 point tomorrow, which would excite the sideline buyers. This backs up our perspective of the current technical picture as trading in no man’s land for now.

The bottom line is that we need a decisive move, to the upside or downside, over the next few days to provide the indication of whether the next 10% move in the marketplace will be greater or lower. Tomorrow may be the day to provide this directional move.

We’re certainly standing at the ready to initiate a new string of option positions to benefit from the impending move in stocks. We’ll do our best to keep you under our wing as we open these new positions. Trade well.

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?Editor’s Note: Sam Collins will return on Monday, June 28. If you are interested in continuing to receive marketplace analysis and trading picks from Chris Johnson and Jon Lewis, you can sign up for their Winning Edge trading service here.

Stocks continued to gain directional momentum on Thursday, as mixed economic data provided little to nothing for the bulls to hold on to.

The S&P 500 (SPX), Dow Jones Industrial Typical (DJI) and other major indices dropped more than 1.5% as sellers took control of the tape on increasing volume. The increase in volume is troubling as the light volume trade is now giving way to a consensus action as greater volume indicates that the bandwagon sellers are now hopping into the trend. Marketplace breadth is on the decline as all 10 of the market’s sectors finished the day in the red.

There’s no way to mask it: The marketplace has deteriorated from a relatively strong technical picture to a near dire situation over four trading days. The SPX closed below its much-watched 200-day moving typical, inducing an increase in selling volume as the institutional investors became more engaged in the trend change.?

Now, the relative strength leading Nasdaq 100 Index, represented by the PowerShares QQQ Trust (NASDAQ: QQQQ) shares, is threatening to follow suit as its 200-day moving typical is only 20 cents below Thursday’s close.

The QQQQ shares will dictate the next 3%-5% move in the marketplace today. Mixed earnings results right after the close from Oracle Corporation (NASDAQ: ORCL) and Research In Motion Limited (NASDAQ: RIMM) won’t help to provide the direction, leaving everything to the technicals. As the Nasdaq 100 has been a leading index on the rallies, short-term traders really should look to cover their portfolios with additional put protection today need to the QQQQ shares break below their 200-day trendline.

In a similar situation is the iShares Russell 2000 Index (NYSE: IWM), which came to rest within a few cents of its 200-day moving typical as well as the lower band of its regression channels drawn from the 2009 bottoms. What does this mean? Once once again, a support level that must hold on today’s trading in order to keep any sense of a tradable intermediate-term bullish trend.

We recommended that options traders buy short-term puts yesterday, a move which has already paid some returns following today’s action. For now, we would recommend that you hold that put exposure UNLESS we see a strong move off of the support levels indicated on the QQQQ and IWM shares.

Failure to hold these marks will see the marketplace spiral another 2%-5% lower over the next 3-5 trading days. Traders ought to also beware that any support from these technical trends may be short-lived. As tedious as it may be, a marketplace environment like this dictates that traders and investors stay in tune with the day-to-day activity.?

Equally important is the ability to remain nimble because of the fact that this marketplace can indeed turn on a dime, something that we’ve witnessed in less than a week’s trading. We’ll keep you up with the trend and identify the next opportunity to close shorts and start adding stocks and calls to your portfolio.

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After four days of declines, most marketplace watchers expected a relief rally on Friday. And when a finalized version of a financial reform bill was agreed upon by the Senate and House, a rally was sparked.

Bank stocks and related financial stocks surged on the news. Diversified financial services gained 3.4%, investment banks and brokerages gained 3.1%, and specialized financials had been up 3.4%. Overall, the financial sector gained two.8%. American Express Company (NYSE: AXP) gained 3.7%, and Bank of America Corporation (NYSE: BAC) rose two.7%.

But just two hours following the long-awaited deal, the marketplace sagged despite the fact that the financials held their ground. And by the close, only a handful of sectors had retained the gains made earlier.?

Small caps in the Russell 2000 (RUT) jumped 1.9%, along with the materials sector, led by gold and silver stocks, held its gains. Newmont Mining Corporation (NYSE: NEM) rose 4.61%, and Freeport-McMoRan Copper & Gold Inc. (NYSE: FCX) gained 4.93%. ASA Limited (NYSE: ASA) rose 3.25%, and Gabelli Global Gold, Natural Resources &Income Trust (AMEX: GGN) gained 1.82%.

Volume was high as adjustments had been made to match a rebalancing of the Russell indices, which will begin trading today.?

The final GDP reading for Q1 showed that the economy grew at a rate of two.7%, which was slower than expected. Personal consumption growth elevated, but at a rate of 3%, just missing estimates.

The final consumer sentiment survey for June showed an improvement to 76 for the best reading because January 2008. However, none of the economic reports appeared to impact the day’s trading results.

The U.S. dollar fell versus the euro along with the yen.?

At the close the Dow Jones Industrial Typical (DJI) was down 9 points to 10,144, the S&P 500 (SPX) gained 3 points at 1,077, along with the Nasdaq (NASD) rose 6 points to two,223.

The NYSE traded two.6 billion shares with advancers ahead of decliners by almost 3-to-1. The Nasdaq crossed 1.7 billion shares, and advancers there had been ahead by just over 2-to-1.

Crude Oil for August delivery rose $2.35 to $78.86 a barrel on fear of a developing storm system in the Gulf of Mexico. The weather system (Alex) could develop into the first hurricane of the season. The Energy Select Sector SPDR (NYSE: XLE) closed at $52.49, up 15 cents.?

August gold rose $10.30 to settle at $1,256.20 an ounce, and also the PHLX Gold/Silver Sector Index (NASDAQ: XAU) rose 6.45 points to 185.12.

What the Markets Are Saying

On Monday, June 21, stocks advanced early following a report that China would allow its currency to float more freely a potentially good piece of news. Buyers launched a brief attack on the 50-day moving averages, but by late afternoon, all of the early gains had been lost along with the day closed on a most disturbing note a daily reversal down. The negative impact of such a decline and reversal on good news could not have been worse.

What followed had been four days down, with Friday ending in a draw. Friday’s struggle was almost as significant as Monday’s decline in that the financials had been ignited by the relief of the announced agreement to finally get a financial regulation bill going. But rather than the rally broadening, it remained confined to just the financial and financial services groups, and also the bulls had to suffer another in a string of technical disappointments.?

With the major indices now below their respective 200-day moving averages, there has been significant technical damage to the marketplace. We could get a dead cat bounce early in the week, but with the long Independence Day weekend ahead and some formidable resistance above, it is unlikely that any major gains will be made this week.

As for the resistance, rallies will most likely be contained by the conjunction of a falling 50-day moving typical and a rising 200-day moving typical for each index. The marketplace is now in a short- and intermediate-term decline, along with the long-term trend is in doubt.? If the indices close below the important February to May/June lows, then look out below.

Today’s Trading Landscape

Earnings to be reported following the close include: Barnes & Noble, Micron and SMSC.

Economic report due: personal income and outlays (the consensus expects 0.5% for personal income, 0.2% for consumer spending).

If you have questions or comments for Sam Collins, please e-mail him at samailc@cox.net.

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On Monday, stocks started low and slow, and ended just as they began with the major indices in decline. Volume was light, as well as the market’s focus was primarily defensive, although positive economic news was reported prior to the opening.

The economic reports had been no blockbusters, but they did show that the economy is in a modest recovery. Real disposable income for May elevated 0.5%, along with the personal savings rate elevated to 4% from 3.8% in April.

Even two decisions by the Supreme Court that ought to have had a positive effect on business had little impact on the broad marketplace. The Court struck down provisions that created a private regulatory body to inspect and discipline public company accountants. The justices also rejected an appeal by the government which sought to revive a rejected attempt to get tobacco firms to forfeit up to $280 billion in profits and pay $10 billion for smoking-cessation programs (Wall Street Journal).

Telecom and consumer staples stocks, both defensive sectors, had been strong. Telecom rose 1%, and consumer staples gained 1.1%. Sprint Nextel Corporation (NYSE: S) gained 6.2%, MetroPCS Communications, Inc. (NYSE: PCS) rose 0.8%, and AT&T Inc. (NYSE: T) was up 0.7%.

The U.S. dollar gained at the expense of the euro, which fell 0.8%. Treasuries had been greater with the benchmark 10-year note, up 25 basis points with a yield of 3.01% a new 52-week low.

At the close, the Dow Jones Industrial Typical fell five points to 10,129, the S&P 500 was off two points to 1,075, and also the Nasdaq lost 3 points to two,221.

The NYSE traded 925 million shares with decliners ahead of advancers by about 9-to-7. The Nasdaq crossed 518 million shares with decliners ahead by 4-to-3.

Crude oil for August delivery fell 61 cents to $78.25 a barrel as the first tropical storm of the season appeared to have lost its punch. The Energy Select Sector SPDR (NYSE: XLE) closed at $51.78, off 71 cents.

August gold fell $17.60 to $1,238.60 an ounce, and also the PHLX Gold/Silver Sector Index (NASDAQ: XAU) fell two.01 points to 183.11.

What the Markets Are Saying

Despite good economic data and two supporting Supreme Court decisions, the stock marketplace sputtered like a defective July 4th fireworks rocket. Only two sectors showed strength yesterday, and both are considered defensive, so the broad marketplace gave another negative signal telling investors that no matter how good the news, buyers are not interested in stepping up.

Yesterday was the sixth day down considering that the high of June 21, if we count Friday as a minus day. As Q2 grinds to a close, the quarter has produced the following results: The S&P 500 has fallen 8.11%, the Dow is down 6.6%, and also the Nasdaq has fallen 7.4%. And Dorsey Wright & Associates reports that only two of their ETF sectors will close the quarter with gains precious metals and gaming.

Despite the quarterly losses, our internal indicators are not oversold. Moving Typical Convergence/Divergence (MACD) is neutral and on the edge of a sell signal, the slow stochastic is neutral having flashed a sell on June 21, momentum turned negative on Friday, and Relative Strength Index (RSI) is neutral.

As we approach the Q2 earnings season, investors are not confident that the results will match expectations. This could be good as long as the earnings exceed estimates.

However, if the results are as bad as investors are anticipating, then the charts of the major indices could be forming massive head-and-shoulders patterns. Here the key word is could, given that the trigger of the head-and-shoulders would be the decisive penetration of the neckline, which is now at S&P 1,040 to 1,045.

But don’t attempt to anticipate this most graphic of all chart formations by selling now. The chances are far better than even that the support line will hold, but if it doesn’t, we will be strong sellers.

Today’s Trading Landscape

Earnings to be reported following the close include: EXFO, General Mills, Sealy and Worthington.

Economic reports due: ICSC-Goldman Sachs store sales, Redbook, S&P Case-Shiller House Price Index (HPI), consumer confidence (the consensus expects 63.3), State Street Investor Confidence Index and farm prices.

If you have questions or comments for Sam Collins, please e-mail him at samailc@cox.net.

U.S. stock markets sold off sharply yesterday, following the plunge of European and Asian markets. The chief concerns of investors focused on a report that China had its leading economic indicators for April slashed and that the European Central Bank (ECB) is caught in a serious liquidity squeeze. The S&P 500 fell to its lowest level given that November with 499 of its 500 stocks showing a loss before a late rally closed the index slightly above its May 26 low.

As for China, its leading economic indicators for April had been cut to 0.3% from a previously reported 1.7%. Given that China has been considered the engine of the world’s economies, stock markets around the world sold off on the news.

And the Europeans could now be in an even worse condition with the ECB unable to loan to its member banks. Meanwhile European governments are attempting to raise taxes while cutting expenditures which is considered a recipe for disaster by most economists as one maven put it, Hasn’t anyone heard of the 30′s when such a policy lead to a depression?

In addition to the global worries, a fall in U.S. consumer confidence brought more sellers into the marketplace. The Consumer Confidence Index for June came in at 52.9 versus an estimate of 62, which was well under the 62.7 reported in May. And also the long-awaited financial reform bill is reportedly mired down following the death of Senator Robert E. Byrd.

Under such conditions investors flocked to the safety of U.S. Treasury bonds, investment grade corporate and municipal bonds, and gold. The yield on the 10-year Note broke under 3% for the first time in over a year. Along with the euro plunged to $1.2206. Gold had a modest rise.

At the close, the Dow Jones Industrial Typical was down 268 points to 9,870, the S&P 500 lost 33 points to 1,041, as well as the Nasdaq fell 85 to two,135.

The NYSE traded 1.6 billion shares with decliners ahead of advancers by more than 7-to-1. On Nasdaq decliners had been ahead by over 8-to-1 with volume of 868 million shares.

What the Markets Are Saying

There is no doubt that there had been reasons aplenty for yesterday’s dramatic sell-off. But there are also reasons to question the permanency of the selling. The Fed’s monetary and fiscal policy has failed to put the economy in fast forward, but it is in forward, China’s policies as well as their reporting are always questionable, the European situation is not new but a rerun of the same failed policies, and consumer confidence is almost always down in the hot summer months.

The question is, did the market’s breakdown tell us that a new bear marketplace has begun?

From a technical viewpoint it would have been much better to see either a new low on the close or to have enough purchasing at yesterday’s close to reverse prices up. Rather we got late getting that brought the close of each of the major indices above the point of a defined breakdown but not nearly enough to reverse the near-term downtrend.

My guess is that today, the last day of the quarter, will likely turn out to end with a rebound following a weak opening that will flush out the stragglers of the herd of tenacious bulls. A rebound could result from either the Chinese disowning the report of slowing indicators, the ECB saying that they are willing to lend enough to keep their economies afloat, the Senate getting its act together on the finance reform bill, or any combination of the above or even something new and positive. But the effect will be the same a rally following yesterday’s sell-off.

Perhaps 43 years in examining stock patterns has made me reluctant to join a pack, which is running in either direction. But yesterday, with the public scared out of their wits, just before the close institutional buyers arrived and bought a lot of stock. This is the fourth time this year that the major indices have held at the S& P 500′s 1,040 level and my guess is that it will hold once more at least temporarily and rally just enough to pummel the shorts who arrived late at the party.

The overall pattern is weak, but the final act of this drama is yet to be played, and my guess is that before the bulls are slaughtered there will be one more round of bear hunting.

Today’s Trading Landscape

Earnings to be reported before the opening include: Acuity Brands, American Greetings, Canadian Solar, Lindsay Corp, Monsanto and UniFirst.

Earnings to be reported soon after the close include: Apollo Group, Christopher & Banks, Schnitzer Steel, Smith & Wesson and Xyratex.

Economic reports due: bank reserve settlement, MBA purchase applications, ADP employment report, Chicago PMI (the consensus expects 59.7), and EIA petroleum status report.

If you have questions or comments for Sam Collins, please e-mail him at samailc@cox.net.

Stocks smashed through a major line of technical support yesterday, with all three major indices ending Q2 with a loss and at new annual lows. Wednesday’s tumble resulted in losses for the quarter of 10% for the Dow Industrials, 11.9% for the S&P 500, and 12% for the Nasdaq.

A weak jobs report from Automatic Data Processing (ADP) was blamed for the meltdown. But stocks had been holding their own until the last hour, despite the fact that the ADP report was published just right after noon.??

The mood at the opening was cautiously optimistic following a good result from a short-term debt issue by the European Central Bank (ECB). And a positive report from the Chicago area’s manufacturing activity also contributed to a greater opening.

The heavy selling started following a report that Moody’s has placed Spain’s debt on review for a feasible downgrade. But why need to the marketplace sell-off on this news when both Fitch and S&P had already cut Spain’s rating?

The euro traded greater versus the U.S. dollar, closing at $1.2229, up from $1.2197 on Tuesday.

At the close, the Dow Jones Industrial Typical was down 96 points to 9,774, the S&P 500 fell 11 points to 1,031, along with the Nasdaq was down 26 points to two,109.?

The NYSE traded 1.4 billion shares with decliners over advancers by almost 2-to-1. The Nasdaq traded 687 million shares, also with decliners ahead by less than 2-to-1.

Crude oil for August delivery fell 31 cents to $75.63 a barrel, and also the Energy Select Sector SPDR (NYSE: XLE) fell 39 cents to $49.68, its lowest closing price given that August 2009.?

August gold rose $3.50, settling at $1,245.90 an ounce. The PHLX Gold/Silver Sector Index (NASDAQ: XAU) was off 0.27 points to 177.63.

What the Markets Are Saying

There is just no way to put a good face on yesterday’s late-day crushing of the primary support for the major indices. As analysts try to make sense of the selling, no fundamental analysis explains what happened.

But to those of us who follow technical analysis, the penetration of the neckline of a feasible massive head-and-shoulders top must be studied. We need go no further than the charts themselves to understand the implications of the event.

First, let’s examine closely whether the breakdown of the S&P 500 is really a head-and-shoulders break. Although it is one of the most graphic signals, it is also one of the least understood.

The classic pattern occurs only at marketplace tops, and not in the midst of an already established decline. This pattern did occur at a marketplace top following a broad advance from the bear marketplace low of March 2009 to the peak, or head, on April 26 of this year. Chalk one up for the bears.?

The left shoulder of the pattern is the culmination of a strong rally following an extensive advance and is always lower than the head but greater than the right shoulder. This recent break conforms to the ideal given that the left shoulder’s high was at 1,150 along with the right was at 1,122.?

Next, volume on the advance up to the right shoulder really should be lower than the advances up to both the left shoulder along with the head. Once more, this is accurate. Remember my continued complaint of the really low volume on advances versus the volume on declines in the month of June.?

And, finally, there must be a break of a well-defined neckline by at least 3% of the total value of the stock (index) at the point of penetration of the neckline. Well, we do see a extremely well-defined neckline, and it has been violated. But in order to have a confirmed head-and-shoulders we must have at least a 3% penetration of the neckline.

That means that this formation, as ugly as it looks, does not yet conform to the classic definition of this major reversal pattern. We must see a further decline to 1,009 before we are able to confirm that a new bear marketplace exists.

Now you may say, Picky, picky. The charts of the major indices look lousy. Stop hedging yourself, Collins, and call it for what it is.?

My answer to that is simple: Words have meaning and technical analysis has quite specific, time-tested definitions for each term that we use. You may discard them if you wish, but if you do, then you are running on a hunch, and hunches don’t usually make money.

Here is the way I read the current outlook: Following a further swift decline, new money from institutional investors may be put to use early in Q3, driving prices back up through the neckline, and perhaps to the S&P’s 20-day moving typical, or even the 200-day moving typical. If that occurs, look for another downside reversal that could test yesterday’s break. It is that decline that will tell us if we have broken into a new bear marketplace. But if the S&P and its companions fail to rally, drive immediately lower and establish losses of 3% below their respective necklines, then the bull will be dead and a new and ferocious bear will tear into the marketplace.

Today’s Trading Landscape

Earnings to be reported before the opening include: Constellation Brands, Methode Electronics and MSC Industrial.

Earnings to be reported right after the close include: Demandtec and Flow.

Economic reports due: motor vehicle sales (the consensus expects 8.9 million), Monster Employment Index, jobless claims (the consensus expects 450,000), ISM manufacturing index (the consensus expects 59), construction spending (the consensus expects -0.5%), pending property sales index, EIA natural gas report, Fed balance sheet and money supply.

If you have questions or comments for Sam Collins, please e-mail him at samailc@cox.net.

ChangeWave???s June consumer survey has picked up a dip in U.S. consumer spending heading into the summer ?

Stocks had been lower for the eighth time in nine sessions as the third quarter kicked off on a somber note. Admittedly the decline yesterday was modest, but only compared to the 7% beating investors have taken because June 21, when the major indices reversed from their 50-day moving averages, and on Wednesday, June 30, broke to new lows for the year.

In light of the dour economic news, perhaps stocks did fairly well.

Initial jobless claims had been greater than expected by 14,000, and continuing claims climbed to 4.62 million from 4.57 million. The ISM manufacturing index for June came in at 56.two as an alternative to the expected 59 for the worst decline considering that January. And pending property sales for May fell 30% month-over-month for the steepest slide in the nine years of record keeping.

The euro was strong throughout the day, and that would have normally been an encouragement to U.S. buyers. But heavy selling in Europe most likely tempered our reaction to a greater euro. France’s CAC 40 Index closed 3% lower, Germany’s DAX was off 1.8%, and also the UK’s FTSE fell two.3%.

At the close, the Dow Jones Industrial Typical was off 41 points at 9,733, the S&P 500 fell 3 points to 1,027, and also the Nasdaq was down 8 points to two,101.?

The NYSE traded 1.five billion shares with decliners ahead of advancers by about 1.4-to-1. The Nasdaq crossed 790 million shares and decliners had been ahead of advancers by almost 2-to-1.

August crude oil fell $2.68 to $72.95 a barrel on fears that the economic recovery is weakening.?

August gold fell $39.20 to $1,206.70 an ounce, as investors sought out Treasury bonds for safety rather than the riskier metal.

What the Markets Are Saying

For those who missed the appearance of former Fed Chairman Alan Greenspan on CNBC yesterday morning, you might want to check your DVR or get a copy of the interview for some revealing insights on the workings of the Fed, and Mr. Greenspan’s wry humor. Here are some gems:?

* On his comment four years before the bear marketplace of 2000 to 2002 when he cited tech stocks as showing irrational exuberance, he said that a recent complete reading of his statement even left him in the dark as to what he really meant.?

* As to the demise of Bear Stearns and Lehman Brothers, back in the old days when firms had been partnerships, the owners had been much more careful as to how money was spent and invested considering that it was their money at risk. Today’s corporations, which are using other people’s money, are less prudent in their approach to risk.?

* He also opined about the way legislation is now written by junior people who don’t understand the impact of what they are writing.?

* There had been many others, but in one of his final comments he said, We are on the deflationary edge.

It is that last remark that struck me as most significant and may explain the recent decline in one sector gold that has held throughout Q1.

Gold, as well as other precious metals and commodities, is showing signs of a serious top. These assets are usually considered a safe haven. Liquidation typically occurs only during times of stress and is triggered by margin calls that force the liquidation of all assets, good and bad.?

Point-and-figure charts show a high pole for gold, and also the charts of some of our favorite natural resource stocks are tracing out an unusual bearish formation called a horn.

The new bear marketplace has begun, and here is the evidence:?

1. The broad-based NYSE Composite has executed a death cross (50-day moving typical crossing down through the 200-day moving typical).

2. The other major indices are just a session or two away from the same signal. And many are forming a horn or broadening top an unusual but highly accurate formation most often seen at marketplace tops (source: Technical Analysis of Stock Trends by Edwards and Magee).?

3. The Dow Industrials, Dow Transports and Dow Utilities have a pattern of lower highs and lower lows for a Dow bear marketplace confirmation.

4. Finally, the S&P 12-month moving typical has been decisively penetrated by June’s falling prices, which is triggered on the final day of the month.

A new bear marketplace has arrived. Next week, we will discuss the achievable extent of a projected decline regarding both time and price.

Today’s Trading Landscape

There are no significant earnings to be reported today.

Economic reports due: employment situation (the consensus expects -125,000 for non-farm payrolls, 105,000 for private payrolls, and 9.8% unemployment rate), and factory orders (the consensus expects -0.5%).

If you have questions or comments for Sam Collins, please e-mail him at samailc@cox.net.