The non stop up, low volatility market appears to finally be done with. For nearly a year and a half it’s been rare to see even a down 0.3% day, forget the more normal 0.5%, 0.7%, heck 1% down days. A lot of decades long records were broken in that time in terms of volatility, and for anyone trying to trade both sides of the tape and not just “up” it was a very strange period. Finally some volatility has returned. The S&P 500 had only closed below the 20 day moving average TWICE in half a year – very head scratching. Finally that changed. Stuff like this changed Monday:
The S&P 500 had gone 406 sessions without such a decline, marking the longest period without a 5% pullback in 20 years.
Entering this past week the market was extremely oversold – so it was not so much a question of would there be a rally early in the week. But what would happen AFTER the rally. So many had been conditioned to buy ANY dip as bulls were bullet proof for so long. So a few surprising things this week – (a) Monday was really bad even though markets were extremely oversold; that’s certainly different than any recent behavior. The oversold rally finally came Tuesday. But (b) instead of a straight shot back up to the moon as many have come to expect – another significant decline followed Thursday, trapping many of those who “buy every dip because you get rewarded”. So that is also a change in character. There was a nice rally Friday afternoon but at this point we definitely have a different market than we’ve seen since Election night 2016. Which at least for us market commentators – makes for a lot more interesting writing!
Randy Frederick, vice president of trading and derivatives for Charles Schwab, noted that stocks have “been going almost straight up since the start of the year,” which meant a pullback was both “expected and healthy” in his view. “It doesn’t mean the bull market is over; it simply takes away some of the froth and irrational exuberance from stocks and puts us back on a more sustainable trendline.”
“Frankly, we think it’s healthy to see some of the recent market froth blow off — January’s gains were unsustainable,” wrote Steve Chiavarone, portfolio manager at Federated Investors, in a Tuesday research note titled “It’s a healthy selloff, not a harbinger of something worse.”
I did get a chuckle out of reading phrases like this Tuesday – death spiral? A market that at the time was ~5% from all time highs? A market that (as of Tuesday) was still positive for the year on the DJIA?
The U.S. stock market halted its death spiral to close higher Tuesday….
Is this the end of days? No – remember Brexit would mean the world ends? It’s a long overdue return to some semblance of a 2 way market after none of that for well over a year. Is it the end of the 9 year bull market? No one knows and we won’t know until we look back at it 6 months from now. It could just be another weigh station along the way to greater gains just as much as the end of the bull. That said, eventually the end of this bull market ends; this is one of the longest in tooth ones we’ve had. But that’s a discussion for another day. But remember when we posted a story about “24 hour trading” on one of the online brokers – funny how that marked the near term top almost to the day!
The S&P 500 fell 5.2% and the NASDAQ 5.1% for the week.
In economic news, ISM Services Monday jumped to a 13-year high of 59.9, the Institute for Supply Management said.
Ten year yields – the “culprit” pointed at two weeks ago at the start of this pullback – really just stabilized this past week at a higher level.
Apple broke it’s 200 day moving average – again “first time in a long time” we’ve seen that. Other fan favorites like Facebook and Google touched or nearly touched their respective 200 days.
The VIX woke from a year+ slumber.
The bitcoin fell below $7K ,during the week before some bounce- ah remember the good ole days of $20K…. 50 days ago? 😀
Here is the 5 day weekly “intraday” chart of the S&P 500 …via Jill Mislinski.
Another nice chart – a history of drawdowns since 2009; to put this one in perspective and to put the length of time between this one and the prior in perspective vs the last near decade when they were far more common (click to enlarge):
The week ahead…
The market could go up – or it could go down. That’s a refreshing thing to say after months upon months of stating it pretty much is going to go up! On a serious note we still enter the week quite oversold, so again there should be a near term rally. Keep looking for signs of change in character – high volatility is not a sign of stability.
Since a lot of the hand wringing is about incipient inflation – which is still pretty limp – some of this week’s economic reports might actually be looked at rather than ignored as most have been the past 14 months. Wednesday brings CPI, and Thursday PPI. Retail sales also are released Wednesday.
Short term: The S&P 500 plunged through its 50 day moving average, and hit its 200 day moving average before a large technical bounce Friday. I expanded the NASDAQ chart out to 10 months and we’ll watch it for a few weeks as there is a “gap” in the chart back at 5950. Which two weeks ago seemed unfathomable to fill. But less so now if things continue to trend down.
The Russell 2000 had it’s low of the day Wednesday right on the 200 day moving average, then Thursday closed on it, then Friday broke through it only to recover. You don’t think people watch moving averages closely?
Still VERY oversold on the NYSE McClellan Oscillator. So a snapback rally still can happen.
Long term: These long term charts had gone parabolic in January. The NASDAQ one was particulary telling as we had a very well defined channel which the NASDAQ was riding for a very long period – not only was it in this channel but it was clinging to the top of it for a LONG time. Then in January it broke out to the upside of said channel – i.e. parabolic. Now we are back to the middle of the channel which we haven’t seen since pre-election.
Charts of interest / Big Movers:
Monday, Corcept Therapeutics (CORT) tumbled 26% after the drugmaker disclosed that it had been informed Teva Pharmaceutical (TEVA) had submitted a new drug application for a generic version of Corcept’s hyperglycemia treatment Korlym.
Wednesday, Snapchat (SNAP) surged 48% after better-than-expected quarterly results late Tuesday. Boo yah.
Twitter (TWTR) jumped 12% Thursday after the microblogging company delivered better-than-expected financial results and reported its first-ever quarter of profitability.
Grubhub’s (GRUB) stock jumped 27% after the company reported better-than-expected revenue.
Expedia (EXPE) plunged 15.5% Friday after a wide earnings miss.
Have a great week and we’ll see you back here Sunday!