After Monday’s downside disaster, the market is trying to undergo a typical “Turnaround Tuesday” as things tend to gap open higher, which they did, and then the sellers come in to pressure things off of those highs, which they are doing, and then the market has to try to stabilize in order to end the bloodletting, and I pointed these things out in the Reuters story in which I was featured.

The disaster has now raised the scorecard to 15 triple-digit Dow moves in the past 20 days, with the scorecard now reading 6 higher and 9 lower, which means that the pressure is still to the downside. And as a result of the latest triple-digit Dow loss and its collateral damage to the S&P, that beautiful streak of 149 days without a 5% downside correction is now in the history books as well, as after yesterday’s close, it is now 5.7% below its all-time high closing level and worse than that off of the all-time high intraday level. The best close was on May 21st at 1669 but let us also remember that the S&P got as high as 1687 intraday early on May 22nd before the Bernanke Congressional testimony disaster made for a “key reversal” in the sense that an item makes a new high and then closes below the previous day’s close, which oftentimes means that the bullish buying power has now been exhausted and some sort of correction will ensue, which is exactly what has taken place here as it fell to a nine-week low.

This now ensures that the all-time streak of 173 days without a 5% correction, which ended on February 20, 2007, is still the one to beat and when will the next time occur that this will be challenged? And adding to the negative statistics, the Nasdaq underwent its worst four-day streak since November 2011.

Now the question becomes – so what happened to cause another day of downside misery in the market? And, the answer is the same recent concerns that have pushed us lower this past month, namely the confusing and contradictory statements coming out of the Fed, plus the newest part of the world that is also ostensibly causing downside ripples as well, and this is otherwise known as the China credit-crunch.

The Dow opened sharply lower due to weakness in overseas markets from Asia to Europe, and made a triple-bottom low with a 248 point loss on three occasions between 10 – 11:30am, from which point it started to chop higher and was actually “only” 25 points lower at 2:40pm, which was an astounding
comeback in and of itself considering how low it had been. But then the buyers ran out of steam and things began to deteriorate once again to finally close 140 points lower. This now meant that the Dow had undergone triple-digit declines during 3 out of the previous 4 sessions, which is nothing to be proud of for sure.

Perhaps calming things down a bit were two Fed officials who were probably brought out to try to assure investors as the Minneapolis President said that investors were wrong to view the central bank as having become more keen to tighten policy than it was before last week’s meeting and the Dallas Fed President mentioned that recent dollar strength and higher interest rates reflect confidence in our economy.

For whatever reason, two Dow stocks led the move off of the worst levels of the session, and they were JNJ and MSFT, which both had the nerve to start trading higher even when the major averages were at the depths of their worst prices in the morning as mentioned above, On the other hand, the shares of the stock named after a fruit declined for the fifth day in a row and the only thing that they accomplished was that on the close they avoided the ignominy of ending with a 3 in front of them after having dipped below that level earlier in the session.

After a start of more than 100 upside Dow points, the scenario repeated itself as by 10:15am it had declined to its worst level of the day so far with a gain of only 38 at 10:15am, from which level it got itself together and reached its best level of the day so far with a 132 point advance at 11:15am, from which it has declined once again and is higher by 70 as this is being written.

Breadth numbers are actually pretty decent at a 21/9 positive ratio and the VIX is lower by 1.42 down to 18.69. And naturally bond yields are rising once again, with the 30-yearup to 3.61% and the 10-year is now at 2.60% on a poor two-year note auction. Bond yields could also be higher due to the fact that today’s economic reports all came in better than expectations, as May durable goods orders, June Consumer Confidence, May new home sales and the June Richmond Fed Manufacturing Index were all higher and even the April CaseShiller Home Price Index rose from an upwardly revised figure last month.

The Euro continues to weaken on the perception of higher rates in this country while gold prices are doing their best not to fall further into the abyss while copper prices are stabilizing a bit after their long journey to the downside. And naturally crude oil finds any reason to go higher as after the Alberta pipeline opened, it now goes up on the better economic reports released today, and once again any excuse to get higher prices to hurt the consumer at this time of the year is acceptable.

The markets also got a bit of help from China, where the overnight repo rate calmed down to 6% today after reaching a record high 13% last Thursday as the central bank there said that they will keep money-market rates at a “reasonable level” as the “seasonal forces” that drove them higher start to fade. The rise in bond yields and strength in the dollar reflects confidence in the economy and added that the Fed’s ultimate exit strategy is still a ways out in the future.

This final week of the quarter will see some economic reports which will be a preliminary judge as to how the economy is doing and whether the Fed’s potential tapering of the stimulus programs is justified. The calendar is as follows – Wednesday: final estimate of 1Q G.D.P.; Thursday: May personal income and spending, weekly jobless claims, May pending home sales, May PCE inflation levels, June K.C. Fed Manufacturing Activity; Friday to end the quarter: June Chicago Purchasing Managers’ Survey, final June U. of Michigan Consumer Sentiment Survey and June NAPM Milwaukee Survey.

First quarter earnings for 2013 rose by 5.4% and the projection at the present time for the second quarter is for earnings to be ahead by 3.2%, and then we will ostensibly see earnings advances of 8.7% for the third-quarter and 13.1% in the fourth-quarter, but these optimistic estimates are a long way off.

The S&P trades at 14 times the projected 2013 earnings of $111. Earnings were $85 in 2010, $92 in 2011 and $102 in 2012. The estimate for 2013 represents a gain of 9%. The average P/E multiple for the S&P going back to 1954 has been 16.4 and it has been 14.4 for the last 10 year’s average.

After four consecutive quarters of negative G.D.P. growth, we have had 15 consecutive quarters of positive growth, starting with the third-quarter of 2009, every quarter in 2010, every quarter in 2011, and every quarter in 2012. G.D.P. rose by 2.2% in 2012, and is projected to increase by 2% in 2013, according to various surveys, with 2.5% in the first-quarter and then in the low 1’s for the second and third-quarters before a fourth-quarter acceleration to over 4%.

Donald M. Selkin

Don Selkin is the Chief Market Strategist at National Securities Corporation, member FINRA/SIPC, (NSC) and provides the Fair Value analysis for CNBC each morning. The commentary provided in this Market Letter is intended to provide our customers with timely market analysis and should not be considered a research report. This Market Letter may contain, and is limited to: Discussions of broad based indices; Commentaries on economic, political or market conditions; Technical analyses concerning the demand and supply for a sector, index or industry based in trading volume and price; Statistical summaries of multiple companies’ financial data, including listings of current ratings; and, Recommendations regarding increasing or decreasing holdings in particular industries or securities. This Market Letter does not make a financial or investment recommendation or otherwise promotes a product or service of the firm. This Market Letter contains only news, facts, and commentary on information previously reported from a news source believed to be accurate and reliable by the author. These news sources include the following: {Bloomberg Financial, Reuters, Associated Press}.