Sector Detector: Financials are a drag

Courtesy of Scott Martindale, Senior Managing Director, Sabrient

We got a big red candle today in the stock market. Major indexes represented by SPY, MDY, and IWM are all resting on their 100-day moving averages and desperately scratching for support. Economically-sensitive sectors like Materials, Tech, and Industrial (represented by IYM, IYW, and IWJ) have fallen strongly below their 50-day and 100-day moving averages, while defensive sectors like Healthcare, Consumer Goods, and Utilities (e.g., IYH, IYK, and IDU) are faring better, finding support at their 20-day moving averages and well above their 50-day and 100-day MAs. Financial (IYF) is the worst off of all and appears to be in freefall, having now dropped to its lows for the year. But I wouldn't suggest surrendering to the bears just yet.

What a difference a day makes. After yesterday's strong performance in the face of disappointing economic reports, the market closed the month of May on a bullish note and back above all daily moving averages. But then today destroyed all of those happy vibes and put the SPY right back to where it was last Wednesday – sitting on its 100-day moving average and the uptrend line from December 1. The ADP Employment report and ISM Index fell short of expectations, and then Moody's issued a late-day downgrade of Greek debt, which gave the dollar a little extra boost while further depressing equities.

The main difference today from where SPY sat last week is that it experienced a false bullish breakout of a symmetrical triangle. RSI has zigzagged back below the neutral line while MACD failed in its attempt to make a bullish crossover.

So, SPY now sits at the convergence of the uptrend line, the 100-day moving average, and the lower Bollinger Band. Today's big red candle on the first day of the month is reminiscent of March 1. You can see that after that big selloff on March 1, the market bounced briefly before falling through its 50-day MA and finding support at its 100-day, all within what might be described as a bull flag. Another bounce and another bull flag formed into April, and now the market finds itself trying to pick a direction from within the neutral symmetrical triangle.

Reports on jobless claims and the unemployment rate over the next two days should impact market direction. ConvergEx reported in their Morning Briefing that…