A significant selloff Friday had bears continuing to enjoy December and calls for the bulls for the Federal Reserve to save them. It’s been a very long time since bears have had the upper hand for such an extended period. Volatility continues to be very high and the charts continue to say “remain in safety”. The Russell 2000 – the laggard of 2018 – broke a yearly low set in February and the S&P 500 broke October lows to create a “lower low”.
Karyn Cavanaugh, senior market strategist with Voya Investment Management, said that disappointing economic data out of China was the biggest driver of Friday’s losses. “The Chinese data was a dirt sandwich, not because it showed deceleration in the Chinese economy, but because it’s showing that all the stimulus they’ve done can’t turn it around.” She argued that the losses snowballed throughout the day because “people are worried that we will reach technical indicators” that could trigger a bout of algorithmic selling.
“Indeed, investors are right to be worried about global growth as China economy continues to sputter,” said Stephen Innes, head of Asia-Pacific trading at Oanda, in a note to clients. “The data lend support to the market’s view that things will get worse in China before they get better, this despite investment rising.”
Go …. utilities (again)?
On the economic front, Chinese export growth slowed dramatically month over month (+5.4% in November vs +15.6% in October) which led to a big selloff early Monday. Industrial output and retail sales in China, announced late in the week also were weaker, leading to Friday’s selling. U.S. retail sales rose a better than expected 0.2%, even as October sales growth was revised up to 1.1%.
For the week the S&P 500 fell 1.2% while the NASDAQ dropped 0.8%. The S&P 500 is now down 2.8% for the year while the NASDAQ clings to a 0.1% gain.
Here is the 5 day weekly “intraday” chart of the S&P 500 … via Jill Mislinski. (please note that there is an error in her chart Monday as the S&P 500 was up 0.2%)
If you are interested in what the top things people were looking for on Google in 2018 here is the data. Interesting that the World Cup was #1…. even in the U.S. in a year the country didn’t qualify to play in it!
The week ahead…
The main focus will be on the Fed’s commentary on the future on Wednesday. Investors will be looking for changes in the forward guidance and potential signals that the U.S. central bank could be slowing down the pace of rate hikes in 2019. If the Fed doesn’t deliver, it sure could be an interesting Wednesday afternoon.
Short term: A new “lower low” in the S&P 500 Friday as October’s intraday low was pierced. The NASDAQ was “stronger” as it did not break to a new low, but obviously looks a train wreck.
It feels like we’ve been typing the Russell 2000 has been underperforming in nearly every recap this year – and that continues as it’s the first major index to break yearly lows.
The NYSE McClellan Oscillator is in the red, concurrent with bad index charts. Enough said. With that noted, any heavy selling early in the week, combined with a “dovish” Fed Wednesday could lead to an oversold rally near term!
Long term: Both these charts are showing breakdowns of channels that are sustained.
Charts of interest / Big Movers:
Monday, Axovent Sciences (AXON) plunged 28% after the drugmaker announced a trial of a treatment for REM sleep behavior disorder wasn’t successful. The rest of the week wasn’t too grand either.
Wednesday, Under Armour (UA) slumped 8.9% after disappointing analysts at an investor day with guidance for coming years.
Thursday, Monster Beverage (MNST) slumped 7% following UBS’s initiation of coverage of the company with a sell rating.
Friday, Costco (COST) plunged 8.6% Friday after a Thursday evening earnings release showed the retailer missed revenue expectations for the fiscal first quarter. Those stock fell below its 200 day moving average for the first time in over a year.
Johnson & Johnson (JNJ) – the type of stock investors usually flee into during times of turmoil – sunk 10%, Friday after a Reuters report alleged the company knew for decades that its baby talcum powder was sometimes contaminated with the carcinogen asbestos. Johnson & Johnson said the report was “one-sided, false and inflammatory.”
Have a great week and we’ll see you back here Sunday!