The biggest factor likely to move the markets this week

The broad market attempted to recover
from an opening gap down last Friday morning, but the bears took
control in the afternoon, causing the major indices to close firmly lower and
near their intraday lows. Small-cap stocks showed the most relative weakness, a
pattern that was prevalent throughout the May to June broad market selloff, as
the Russell 2000 Index fell 1.6%. The 1.2% loss in the Dow Jones Industrial
Average
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PowerRating) shows us that blue chips did not fare much better. The Nasdaq
Composite
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PowerRating) also closed 1.2% lower, while the S&P Midcap 400 Index
declined 0.9%. The S&P 500 again ran into resistance of its 50-day moving
average, prompting a 0.7% loss.

Total volume in the Nasdaq increased by 9% last Friday, giving
the index its second “distribution day” within the past three sessions. Recall
that the Nasdaq gained on higher volume in the prior session, but we pointed out
it was not really an “accumulation day” because the index gave back most of its
intraday gain and finished near its low. In the NYSE, turnover was 1% lighter
than the previous day’s level, but pockets of institutional selling was still
apparent in leading stocks. Market internals were firmly negative across the
board. Declining volume exceeded advancing volume by a margin of 4 to 1 in the
Nasdaq and 5 to 2 in the NYSE.

The biggest factor likely to move the markets this week is
traders’ reactions to the slew of quarterly earnings reports on tap. The S&P
500, for example, is stuck between resistance of its 50-day moving average
overhead and support of its 200-day moving average below:

Most likely, the S&P 500 will break out of that range sometime
this week, but the direction of that move will depend on market sentiment
as earnings season kicks into gear. It is positive that the S&P recovered from
its losses in the latter half of June, but a lot of overhead supply remains. It
would only take another wave of heavy selling to send the index back down to
test last month’s lows. As we pointed out last Friday morning, both the Russell
2000 and S&P Midcap 400 indices have nearly the same chart patterns as the S&P
500. The Nasdaq Composite still remains below both its 50 and 200-day moving
averages, as it never recovered back above them. Important earnings reports to
be aware of this week include the following: