No surprises here this week. As we suggested last Monday, stocks continued to weaken (down the most in five months but just 2.12% in the scheme of things on the S&P) as they hit a short-term top, while gold bounced off the bottom put in place last Monday.
I know what my calendar is saying. “Thanksgiving Day is this Thursday,” the day set aside to give thanks for the bounty with which God graced this country. In our home, like in many others, the kids referred to it as “Turkey Day.” In modern vernacular, “turkey” has taken on a whole separate meaning from the ungainly bird of Pilgrim lore. A “turkey” in today’s film industry is a failure. (By the way, I saw “Lincoln” this weekend and it is definitely not a “turkey.” I highly recommend it and hope that it starts a new wave of American historical dramas. Just this once, could they copy cat something worth copying!)
It was another tough week for stocks with the market moving decidedly lower after last week’s election results. The broader averages were off more than 2%, with the tech-heavy NASDAQ again leading the way lower. Also weak were Utilities and Financials, with the XLU off more than 4% and breaking key support in the process. This is also bad news for the bulls, in that, financially-related stocks typically lead the broad market averages at important (i.e. cyclical) tops and bottoms.
As we noted two weeks ago, the technical health of the markets is starting to weaken pretty materially. Specifically, while the S&P 500 is still holding its intermediate-term trendline (A), the NASDAQ has now clearly broken an equivalent trendline on its chart (B). This break was foreshadowed by a “sell” signal on the MACD (C), which is one of the oldest and most widely recognized trend-following indicators around. We are also seeing the net number of new 52-week highs push further into negative territory (or net new lows expand), which also may confirm the break in the NASDAQ (D).
From here, the most likely scenario is for the markets to test support in the area of either their summer ’12 lows (shown) or summer ’11 highs, which are slightly higher (not shown). Should that occur, whether these levels hold, will be of critical importance to the longer term health of the market.
“You and I do not see things as they are. We see things as we are.”
-Herb Cohen
The entire country is waiting in suspense for the results of the vote that will determine the new President. As of Sunday evening, the race is shaping up to be a “photo-finish” with Mitt Romney leading President Obama by a 49%-to-48% margin based on the most recent Rasmussen pre-election poll (the polling organization with the most accurate projection in 2008). The outcome may just as easily be decided by a court of law as it could be at the ballots. I will avoid expressing my personal views of either candidate or predictions about who is likely to win. However, I feel it is more interesting – as an outsider – to share my opinion about what the election race is saying about the country.
| Mike Hurley is a Chartered Market Technician with 25 years of experience in the financial markets. He has served as the Chief Technical Strategist for several broker/dealers, and currently manages the first, and only, long/short 1940 Act mutual fund which uses top-down, trend following strategies. |  |
Market Recap:
Stocks again finished lower last week, with most of the broader averages off in the 1% range. The Dow and the S&P 500 led the way for a change (off 1.8% & 1.5%, respectively) playing a little catch-up to the NASDAQ from the week prior. The real weakness was in the financial and asset-backed sectors, with the XLF, XLE and XLB all down over 2%. Not only were earnings a disappointment, but there were also renewed concerns surrounding economic growth and the financial situation in Europe.
I attended my wife’s 45-year high school reunion Saturday night. Smallest reunion we’ve been to (we both attended the same high school and both our graduating classes were large). Everyone seemed quite a bit older, moving slower and showing their age. But it wasn’t all negative… there was plenty of happy talk of retirement and grand kids, and those attending were in high spirits and seemed genuinely pleased to see those old faces and hear more about “the rest of the story.”
Over the last couple of days, the stock market suffered some serious damage to the momentum of the bull market rally that has been ongoing since last September. So far the harm has been mainly of the type that market technicians are concerned with – price patterns and moving average breaks.
As I write this, the lawn maintenance company is cutting the grass. Not a big deal if this was May or June, but here in Michigan in the first week of April, it is something beyond my 65 years of experience. (The first grass mowing always does bring back memories of another place and time when I used to mow the lawn myself, but usually had a helper. I know, I was quite a bit slimmer then – maybe it’s time to cancel that lawn service!)