Stocks continue to move lower into the middle parts of the week, with the Dow Jones Industrials showing declines for three consecutive sessions.  This is the first time this has happened this year, and shows a marked turn in sentiment as investors consider the potential ramifications of reduced stimulus from the Federal Reserve.  Since cutbacks in bond purchases will ultimately bring down analyst forecasts for both corporate earnings and GDP growth rates, it is not entirely surprising to see investors book profits at still-elevated market levels prior to the drop in liquidity that typically characterizes the summer trading period.

All industry groups in the S&P 500 are trading under pressure.  But a good portion of the damage has been centered on utilities, which have dropped 11% (as a group) in the last six weeks.  Biogen Idec Inc. (BIIB) has been one of the worst performers this week, falling nearly 8% after analyst downgrades.  One of the positive stories could be seen with Cooper Tire & Rubber Co. (CTB), which saw rallies of more than 40% after buyout rumors were confirmed. Elsewhere, stock values in Japan continue to tumble, with the Nikkei 225 seeing declines of 6.4% in a single session, and reversing the index into bear market territory.  The Nikkei is down now more than 20%, relative to its May 22 high as a strengthening Yen depresses earnings prospects for exporting companies in the country.  The massive reversal in the Nikkei 225 has been one of the most surprising market stories of the year and is indicative of the general expectation that global growth will remain sluggish into the end of the year.

Fed Concerns  

At this stage, it looks as though stocks are going to be able to gain any positive momentum heading into the summer, and rallies are likely to be capped by short-term profit taking.  The latest declines in the Dow, S&P and even the Nikkei are bring driven largely by the expectation that additional stimulus from the Federal Reserve will not be seen and that companies will have to show significant internal improvement in order to maintain reasonable earnings projections.  The S&P 500 has seen a 5-year bull market (rising nearly 140% from the 2009 lows) but here it is looking more and more likely that the highs for 2013 have already been posted.

Chart Perspective  

PriceLine (PCLN):

PCLN is consolidating just above key Fib support, which coincides nicely with the 800 prychological level for the stock.  As long as prices remain above here, the outlook is bullish, with strong prospects for the stock to make new all-time highs above 850.  If we do see a downside break of 800, the next target can be found at 786.

Nikkei 225:

The declines in the Nikkei 225 mean that the index has now given back 50% of the rally from November 2012.  Since we are at a long-term 50% Fib retracement but if we seen a downside break here the next level of support can not be seen until 11,480, so there continues to be scope for more volatile price action in the index.