The Most Important Market Day of 2011

Before I fully turn my attention to 2012 and the future, I thought it would be interesting to take one more look back at 2011. The most important day for equity markets during 2011 wasn’t the top on May 2nd, it wasn’t the massive 6%+ blood bath of August 8th, it was June 1st – A day in which the character of the market drastically changed and from which it never fully recovered. At the close on May 31st, market participants were elated by the strong finish to the session and a break above a short term downtrend line:

 

This turned out to be a bull trap, the variety of which we have witnessed all too often since the June 1st sell-off:

 

The large high volume bearish candle formed on June 1st served to warn market participants that all was not well – over the ensuing three weeks the S&P 500 ($SPY $SPX) would fall another ~4% before staging a blistering rally into early July. Despite the fact that $IWM, $QQQ, $SPY, etc. went on to make highs in early July which were above the May 31st closing level, the market was still in a predominantly sideways consolidation with several key sectors and indicators failing to confirm the early July rally:

 

The financials ($XLF) failed to make new highs during the July rallies, meanwhile, the percent of $NYSE stocks above their 200-day moving averages made successive lower highs after May 31st as the breadth and velocity of the uptrend weakened:

 

It is worth studying major transition days such as June 1st to help us to identify them in real time in the future. It appears that much of the early selling on June 1st came as a result of a much weaker than expected ADP payrolls report, however, such a large relentless sell-off from open to close never results from just a single minor trailing economic number. Instead, it is an indication that large institutions see something that they don’t like somewhere down the road and they want out of the market. June 1st was particularly noteworthy because it began less than 2% from 52-week highs and the selling was vigorous and unabated throughout the entire session.

Finally, I found this CNBC video from the afternoon of June 1st – it is interesting to look back and glimpse into the mood of the market moment….one of the guests says “the sell-off today is likely overdone”:

 

 

 

 

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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