STTG Market Recap February 3, 2014

Well it is clear that 2014 is not the same as 2013.  Generally the first day of the month in almost every month of last year was an up day and one would be chasing to catch up with the indexes most of the rest of the month.  This year has been different as the first day of both January and February was rotten!  Worries about emerging markets continue and a bad U.S. economic report in the manufacturing sector did not help.  The S&P 500 fell 2.28% and the NASDAQ 2.61%.

U.S. manufacturing grew at a substantially slower pace in January as new order growth plunged by the most in 33 years, driving overall factory activity to an eight-month low, an industry report showed on Monday.   The Institute for Supply Management (ISM) said its index of national factory activity fell to 51.3 last month, to its lowest level since May 2013, from a recently revised 56.5 in December.  January’s figure was also well below the median forecast of 56 in a Reuters poll of economists, missing even the lowest estimate of 54.2. Readings above 50 indicate expansion.

We wrote this Friday, and it seems in 2014 technical analysis may actually work to the downside again – not just the upside as it did in the strange 2013:

One area of caution if there is not a quick rebound next week is we are starting to see a formation called a “bear flag” forming on quite a few sector charts – here are the financial and industrials.  In this sort of pattern we will see a pattern of sideways zig zag action as we work off near term oversold conditions and a new leg down will follow.  Now to be clear, anticipating this to happen has been wrong wrong wrong throughout 2013 but at some point old school technical analysis to the downside (and not just the upside) will work again.

As with financials and industrials that same bear flag (in blue) was apparent in the S&P 500.  So you can see after this bear flag was formed we indeed have a new leg down today…and how.   Also note the volume on the selloff is well above average.


With the NASDAQ we see a break of this very simple trendline the index has been in for over a year, for the first time since mid October.  We also wrote Friday that at around this spot (3-5% down from highs) each time in 2013 a furious rally straight back up happened so now we will see if that continues or if we have a more realistic outcome.


The NYSE McClellan Indicator fell to the bottom of this red band… as we have said many times in the past if this red band does not hold we usually get a panic type of selling to the -90 area…which is usually a great place for short term purchases, at least for a trade.


Breadth was horrid again – this is the second such session in just over a week to show extreme downside readings.


The volatility index shot up, to reach peaks seen during the other major selloffs of the past 9-10 months or so.


And the rush to safety continued as 10 year Treasury yields fell to below 2.6%.


So once again we are nearing very oversold levels; if there is any sort of bloodbath tomorrow this would be an interesting area for at least short term traders to make a stand.  For the intermediate term we obviously have some issues – one would want to see the NASDAQ to get back into its trading band and the S&P 500 recapture some recent support – which is going take some work.


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