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Wednesday was an interesting day in the market - participants have been lulled to sleep for over 2 months now; however as we noted yesterday (twice in one story) breadth measurements have been degrading. It has not mattered much to this market which just grinds up or sideways, but mattered some today. The S&P 500 fell 1.13% and the NASDAQ 1.4%. Notably the small caps, as seen by the Russell 2000, have been much weaker of late with that index down 1.6%. There were some high volume selloffs in a few sectors which we'll talk about in a moment. Also interesting this selloff came on the back of good news - a budget deal that stops the normal games in D.C. that we were all going to be subject to in a few weeks. So when stocks sell off on good news, it is something to note! Of course this falls in the "good news is bad news" for those addicated to limitless quantitative easing and the thought is the Fed would be persuaded from holding off even one iota of easing if we had another budget debacle in early 2014. So this takes that off the table.
Late Tuesday, Senate Democrats and Republicans reached a deal to reduce automatic spending cuts and the deficit levels by $23 billion over two years. The bipartisan budget agreement still needs to pass a vote in the Republican-controlled House, expected to take place by Friday, as well as a vote in the Democrat-controlled Senate shortly thereafter. Analysts believe the deal would be passed with policymakers looking to avert another damaging government shutdown like the one seen in October.
The NASDAQ remains in its uptrend channel but has quickly moved from the top of it to the middle. The S&P 500 is still holding the series of highs it breached a few months ago, but let's keep an eye on how it acts in the days go forward.
The Russell 2000 is the interesting one here as we already see it at the 50 day moving average.
The Volatility index of course spiked today - no surprise as there is a major degree of complacency in the market.
The NYSE McClellan Oscillator is already at oversold - it was here last week at the close Thursday before Friday's surge on the employment data.
Let's look at some key sectors which experienced some interesting action. First the transports which broke below their 20 day moving average (on a closing basis) for the first time since this rally began in early October.
Biotechs - the stars of 2013 - had a rough day, and filled a gap from a few weeks ago. Note the volume was much higher than average.
The same situation in broader health care per the S&P SPDR Healthcare ETF (XLV); note the massive volume spike.
Energy also is breaking down per the ETF for the sector.
One note - the S&P announced after the bell it was adding Facebook (FB) to the S&P 500; the stock is up some 4% in after hours.