The selloff continued Friday as we hit short term oversold levels. The S&P 500 fell 0.95% and the NASDAQ 1.34%. For the week, the S&P 500 fell 2.6% and the Nasdaq lost 3.1%, the biggest weekly decline for both indexes since June 2012. The market ignored a U.S. consumer sentiment reading that was a nine month high, with the Thomson Reuters/University of Michigan’s preliminary April read on confidence coming in at 82.6 versus 80.0 in March.
It is worth showing the longer term charts for the indexes for the second time this week to show where we are, and why it matters. As we noted this very long term trend on the NASDAQ finally broke a pattern it has been repeating last week. With that change in pattern we are quickly looking at the 200 day moving average which the index has not sniffed in a long time.
With the S&P 500 the two purple trend line are easier to comprehend on the long term chart – the one that is higher on the page now connected the major lows of last summer/fall. That was where the market rallied to Wednesday on an oversold bounce before being stymied. The lower trend line (which is more horizontal) connects the highs of the summer/early fall. It was punctured briefly in early February but a sharp V shaped rally happened right after. A retest of this level is just above 1800.
Here is the NYSE McClellan Oscillator which is in oversold stage. However there are really two levels of oversold – the main one in the -40 to -60 range which hits a handful of times in a year. But if that level breaks, usually you have a flush of panic selling which can take it down to the -90 range. That might happen just a few times a year – the last time was summer 2013.
The volatility index is creeping back into the upper teens – lately a reading around 20+ indicates a near term bottom.
Bellweather financial JPMorgan (JPM) posted lousy results this morning which turned the mood sour.
Shares of Herbalife (HLF) fell 1after the Financial Times creporterd the U.S. Department of Justice and the FBI were investigating the multi-level marketing company that hedge fund manager Bill Ackman has alleged is a pyramid scheme. After burning short sellers last year who followed Ackman into the stock, we see a clear downtrend in 2014 with a series of lower highs.
Scanning the stocks holding up well today – aside from the type of names we have been discussing this week such as consumer staples and large cap oil such as Conoco, quite a few Brazilian stocks are moving well – there are not that many on U.S. exchanges but their main energy company Petrobras (PBR) and banks such as Banco Bradesco (BBD) are doing well. We have noted that emerging markets changed their pattern a few weeks ago so if you want to take on risk, and like buying relative strength it seems you have to go outside the U.S. right now. That said these particular names have had big runs in a short amount of time.
Have a good weekend and we’ll see you next week.