Yesterday we noted despite the recent bounce "it remains a muddled picture" as a small group of momentum stocks (and the NASDAQ) acted well while major parts of the market did not. This is somewhat similar to the market of late winter/early spring 2012 when Apple went vertical and was essentially holding up the indexes (especially NASDAQ) as sector after sector fell off. Now we have names like LinkedIn (LNKD), Facebook (FB), Tesla Motors (TSLA), and Netflix (NFLX) where many people are hiding out, as many sectors are weakening. So either these leadership stocks will cause the rest of the market to follow suit, or eventually they have a great chance of failing if this selloff continues. Today more hand wringing over Syria caused the market to selloff with the S&P 500 down 1.59% and the NASDAQ 2.16%. This is not unusual because the NASDAQ had separated itself to a degree on the upside and now is reverting to an area closer to the other indexes.
Defense Secretary Chuck Hagel told the BBC the U.S. military is "ready to go" if President Barack Obama orders action over a chemical weapons attack in Syria. Meanwhile, NBC News reported the U.S. could launch a missile strike against Syria "as early as Thursday."
There were two economic reports but they took a back seat:
Home prices gained 0.9 percent in June on a seasonally-adjusted basis, according to the S&P/Case Shiller composite index. On a non-adjusted basis, prices rose 2.2 percent. Compared to a year earlier, prices were up 12.1 percent, in line with economists' expectations. And consumer confidence gained to 81.5 in August, according to the Conference Board, topping expectations for 79.1
We talked about this gap in green in the S&P 500 that was potentially a place the index would hit. It did it in a particularly nasty way as just yesterday afternoon the index was OVER the 50 day moving average and within a snap of a finger it reversed in the last hour yesterday and plummeted to fill this gap today. It is now below the 100 day moving average for only the 2nd time this year (the other being the June lows)
The NASDAQ has a similar gap to fill but has not yet broken its 50 day moving average. If this selloff continues this is an obvious target area.
Lately when 10 year Treasury yields dropped, the market would rally - but today it was more of a "flight to safety" idea during a risk off period in the market.
Once again we did not see the NYSE McClellan Oscillator get back over 0, which would have been the sign of a healthy market. It rallied to near 0 and now has rolled over.
We can see bear flags in a lot of the sector ETF charts - here are healthcare and consumer discretionary. Both had formed a bear flag over the past week, nowhere near as healthy as say the NASDAQ index, and today both fell out of the bottom of these flags. That is bearish.
Even an area like regional banks which led this market in the June selloff experienced a very bad day .
We can see the same poor action in emerging markets via the ETF (EEM). After a breakout of about 5 days that looked to break the pattern of a major downtrend, that was quickly reversed and now we are in another sudden downturn. But this shows you when the reason you bought fails, get out - since it can get worse. Quickly. In this case one could have bought the breakout in the mid $39s, and you would have stopped out in the upper $38s - a surface scratch. A few days later, you are faced with low $37s.
Precious metals continue to be one of the few areas of strength - silver had a fine day.
And oil predictably with all the focus on the Middle East, rallied.
The action remains at best choppy and with today's action we can say at worst poor. It remains a time to be conservative.