STTG Market Recap Oct 19, 2012

Friday could be summed in one word:  damaging.  On the 25th anniversary of “Black Monday” – the market crash of 1987 – stocks suffered their worst day in four months as a slew of weak earning reports from the likes of General Electric (GE), McDonald’s (MCD), Microsoft (MSFT), etc finally pushed the market’s to an “ah ha” type of moment.  The S&P 500 fell 1.7% and NASDAQ 2.2%.  The major indexes all slid to key technical levels which we’ll discuss below.

Let’s start with the NASDAQ, as not only has it been the weakest index, it perfectly fullfilled a specific technical pattern we’ve been discussing for a few weeks – the “head and shoulders”.   In this pattern a left shoulders, head, and right shoulder form (denoted by the orange circles).  The bottom of the two shoulders is called a neckline; that was created around 3100.  The measure of the difference between the neckline and the top of the head – in this case ~100 points, is then subtracted from the bottom of the neckline to create a target downside.  Hence substracting 100 points from the 3100 neckline creates a target of 3000.  That was fulfilled exactly today as the NASDAQ’s low was 3000.27.

Now of course technical analysis an art not a science and the move could continue lower but this was the objective of this specific pattern and hence why the sharp rally seen early in the week was to be treated with some suspicion.   One other thing to note – see the volume the past two sessions during the selling… it has been well above trend which is not a positive.

 

The S&P 500 also fulfilled a pattern perfectly and that is simply falling to the low end of this ascending channel it has been traveling since June.  Below is a longer term chart than we normally show, to illustrate both that pattern and why the S&P 1420s are an important level.  As you can see that level was the peak in April 2012, so a break below that level would be another negative in the market.  It would also mean a break down below the lower end of this multi month channel.  Now of course one must be wary of a potential headfake where the index quickly falls below a key level for a day or two, causing everyone to give up hope, before jumping back up – see the action in late July when that happened…. but certainly all eyes will be on these levels next week.   Once again, we see volume increasing on this selloff.

 

The larger point here is we have a lot of weakness creeping in and this can be seen in individual charts.  A lot of former leadership stocks have broken down severely the past two weeks and hence finding constructive charts is becoming a much more difficult chore.  So the odds of finding those names and avoiding carnage on days like today is minimal.  You can see the advance decline ratio was poor – and this was well off the worst levels of the day when the figure was close to 2000.  There have now been two such readings in the past two weeks whereas we had not seen any since July of similar ilk.

 

As for individual issues you can see the large selloffs in America’s brand names such as General Electric (GE), Microsoft (MSFT), and McDonald’s (MCD).   This follows major weakness in Google (GOOG), Apple (AAPL), Intel (INTC), IBM (IBM), Wells Fargo (WFC) and a host of other “brand name” companies during the early part of earnings season.  In the end the indexes are composed of individual stocks, so with all this weakness in key issues eventually even the S&P 500 or Dow – which have been more immune than the NASDAQ or Russell 2000 – have to follow suit.

 

On a lighter (pun intended) note – don’t use a lighter around anyone who uses these sunscreens!

  • Energizer Holdings the consumer goods conglomerate that produces Banana Boat products, announced Friday that certain of the brand’s sunscreen sprays may potentially burst into flames on users’ skin if they come in contact with a flame or spark before the spray is completely dry.
  • Energizer said it has received reports of four “adverse events” in which the sprays have caused burns in the U.S., and one in Canada. The company said it believes the problem stems from the fact that the spray valves on the products in question dispense more than is typical in the industry, meaning that the spray takes longer to dry.  “If a consumer comes into contact with a flame or spark prior to complete drying of the product on the skin, there is a potential for the product to ignite,” Energizer said in a statement.

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