What’s Brewing Beneath the Market’s Surface?

Editor�s note: Serge Berger, the head trader and investment strategist for The Steady Trader, will be providing the Daily Market Outlook until Sam Collins returns on June 27.

Monday was a snoozer of a session if looked at from 30,000 feet, but underneath the surface, some interesting action could be detected. The broader indices closed flatish for the session, with the Nasdaq proving to be the underperformer. From a sector perspective, the financials came out ahead, while the energy complex was very weak.�

Speaking of the energy sector, there are two charts worth noting. Yesterday, the Energy Select Sector SPDR (NYSE: XLE) broke a four-month-long horizontal support level near $72.50 on a closing basis.

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The second chart is one I pointed out in yesterday�s Daily Market Outlook: oil via the United States Oil Fund (NYSE: USO). I highlighted the bearish flag pattern in development and mentioned that a breakout of this pattern could lead USO to the $35.50 area. Yesterday, USO broke out of this pattern to the downside and now sits exactly at the 200-day simple day moving average (red line). Historically, the 200-day SMA has been well respected by USO, which now presents us with a conundrum: Which do we believe, the breakout of the bearish flag pattern or the support of the 200-day SMA?

In my opinion, the breakout of the bearish wedge yesterday was not strong enough to initiate a short position quite yet. Given the overall market�s jitters, I would like to see a more pronounced confirmation or failure of USO out of the bearish flag pattern and below the 200-day SMA.

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As for the financials, they built on their bounce attempt from Friday, leading the Financial Select Sector SPDR (NYSE: XLF) to close up 1% and Citigroup (NYSE: C), highlighted here, to close up 3.3% for the day. The $15 area has served as an important level for the XLF during the past 12 months, and until XLF either decisively trades above or below it, we remain skeptical. Nonetheless, the financials� relative strength over the past two days should not be entirely discounted.

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When all was said and done, not much changed by yesterday�s closing bell rang. The financials have not yet shown all they have to in order to push this market higher, and the energy sector also has to show more muscle to break support levels that could give way to lower levels.

This week promises to be filled with important economic news and events both in the United States and Europe, as Greece just received a long-term debt downgrade from B to CCC.

The Nasdaq 100 has now exactly arrived at its 200-day moving average after having failed miserably out of the upward trending cone (blue lines).

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For one stock that is soaring despite the market�s downtrend, see the Trade of the Day.