Stocks Open Week to Downside on China News, Continued Bond Selling

Stocks took heavy punishment to the mid-section, right from the opening bell, rallied midday, but eventually fell out of the ring late in the session.

Much of the distaste for equities came from China, where the Shanghai index had its worst day in four years and is in a bear market. The PBOC has openly declared war on speculation, seeking to tighten via overnight lending rates, a move that cannot be good for markets in the short term, but, long term, may hold some weight as a key to global recovery.

The Dow slipped as many as 248 points in the early going, nearly erasing all of its losses mid-afternoon on some very dovish comments by usually-hawkish Dallas Fed President Richard Fisher, but finished well into the red zone on very late, but very spirited, trading.

The NASDAQ suffered its first four-day losing streak since November of 2011, which says a great deal about where the market has been and maybe even more about where it is going. The Dow and S&P closed lower for the third day in the last four, with the S&P closing below key support levels. The Dow Transports were monkey-hammered, suggesting that the primary trend has changed from bullish to bearish, which, if so, would be a huge development, though it's still too early to tell.

Between China liquidity concerns and a large sell-off in the 10-year note - hitting a high of 2.63 before settling back to 2.57 - the equity markets were whipsawed though the middle of the day.

Signs that the US economy is improving continue apace, with the Dallas Fed manufacturing index posting an impressive gain in the latest survey. Naturally, the market took this as another sign that the Fed would be backing off its bond purchases in the near future, so, despite being unabashedly positive economic news, the markets took it in exactly the opposite manner.

Volume was very high for a summer session, indicative of the heightened interest since the Fed announcement last week. Declining issues outnumbered advancing one by a 4:1 margin. New lows had a 10:1 advantage over new highs, the most since March of 2009, a significant development, indicating severe short-term weakness and - to the bulls - a potential buying opportunity

With the second quarter running down and Fed speakers dotting the landscape this week, it might be a good time for traders to relent, especially those on the short side. The major indices are well into correction territory and taking some profits off the table might not be a bad idea, with a short week just prior to earnings season. Markets close at 1:00 pm EDT on Wednesday, July 3, are closed for the 4th of July and will have a full - though not well-attended - session on July 5.

Any good trader and even some marginal ones, should have been able to book solid profits on the downside move from the prior two weeks and may want to reassess while the market gyrates through the end of the quarter and a holiday week.

The volatility of the past few weeks may subside somewhat, having moved sharply during that time, so taking a break in what is traditionally a time to do so, seems not only smart, but almost instinctive.

Dow 14,659.56, -139.84 (0.94%)
NASDAQ 3,320.76, -36.49 (1.09%)
S&P 500 1,573.09, -19.34 (1.21%)
NYSE Composite 8,892.02, -126.53 (1.40%)
NASDAQ Volume 1,980,708,750
NYSE Volume 5,304,444,000
Combined NYSE & NASDAQ Advance - Decline: 1306-5469
Combined NYSE & NASDAQ New highs - New lows: 68-683
WTI crude oil: 95.18, +1.49
Gold: 1,277.10, -14.90
Silver: 19.49, -0.466