While many in the financial media were cheering yesterday’s gains, we told readers last week that there had been a major trend change, specifically in the NASDAQ and the recent volatility just meant random movement day to day. In fact our quote yesterday was:
We are seeing an increase in day to day volatility and random movement based on headlines so it remains a time to be cautious until we settle into a new pattern.
Hopefully this cautious stance since last week has helped you look at the market at a different light which is certainly difficult to do when all it seems to do nowadays is go up or sideways. There will be down periods eventually no matter what the Federal Reserve wants or does, and that is a time to raise cash and reduce your risk exposure. This is one of those times. Today the S&P 500 sunk 2.09% and the NASDAQ cratered 3.10%. This was the worst day for the NASDAQ since late 2011. Now with this type of drop we will eventually see some sharp rally, perhaps for 2-3 days, and perhaps as early as next week but until a new pattern emerges it won’t mean it’s a time to go guns blazing back into the market.
The S&P 500 continues to hold up better then the NASDAQ because some of the type of stocks people are hiding in – consumer staples and utilities are the type found in the S&P 500. Meanwhile massive damage continues to hit the biotech space which has caused the NASDAQ to perform much worse lately. The S&P 500 yesterday rallied back to the upper trend line but obviously was rejected from that level today….and is quickly back to its 100 day moving average.
Here is that biotech index – as mentioned the past few days, on up days in a volatile market these type of stocks can rally the best but unless you are a short term trader who is great at catching a falling knife (which is almost no one) it is best to wait for these stocks to return to good looking charts or at least make a change in trend like emerging markets have lately. The biotetch ETF (IBB) is now down to its 200 day moving average.
Meanwhile a lot of hot sectors such as 3D printing stocks and internet stocks were horrid today but have been bad for quite a while now. For example Yelp (YELP) had been bouncing off its 200 day moving average a few times but today closed below it for the first time in ages.
3D Systems (DDD) broke below its 200 day moving average back in mid March – you can see why some people like to short against that level. It has been a great spot in this particular name to utilize as a stop out for a trade…. usually it does not work out this easy but you can see the stock has been so weak it has been rejected by the downward trending 50 day moving average the past month on each bounce attempt.
A lot of usual suspects – Amazon, Facebook, Netflix, Baidu took serious hits but we have been warning on these momentum names for weeks – they have been weak.
On the plus side, congrats to anyone holding McDonalds (MCD) which … wait for it… had a nice chart going into today.
And as we showed with Kellogg (K) yesterday, Colgate (COL) had a good day – these are the definition of safety stocks.
So larger picture there are small pockets of strength but they are the “wrong” type of stocks for one to be short term bullish… we want to see a return to “growth” type of stocks, not “bunker mentality” stocks.