As the great college football announcer Keith Jackson would say “WHOA NELLIE!”. Quite a session today – after a small gap up to begin the day things were looking rather boring thru 11:30 AM EST – then an avalanche of selling hit the market the next 3 hours. The S&P 500 plunged 2.50% and NASDAQ a whopping 3.41%! Considering the indexes were quite oversold coming into the day, seeing this sort of selling from that level of oversold is quite unsettling in a 2008 sort of way. We were assuming there would be a nice mid week rally to do a quick upside trade into but that rally was all of 1 day (Tuesday). That said, there is a new opportunity now for an oversold bounce but of course it is always very difficult to buy when one has touched the stove and been burnt!
“We’ve been in capital preservation mode since the year began and as the market has shown an inability to rally with any conviction, that’s only increased the level of nervousness and that seemed to have spilled over today in a very significant way,” said Michael James, managing director of equity trading at Wedbush Securities in Los Angeles.
We’ve been saying for a long time now the intermediate term shows no promise and there is a lot of work to do to fix things but certainly we thought a short term bounce would be happening that would last more than 1 session. It is extremely bad action to see both indexes break below those long term trendlines in blue. That bearish “double top” was certainly a bad sign in retrospect on the NASDAQ. Needless to say 2016 has gotten off to a very ugly start but we’ve had years upon years of up or sideways markets so eventually there has to be a down year….even if the Fed doesn’t want it to happen. How much longer can this go on before market participants who have been babied by the Fed for nearly a decade demand a rate cut and more QE??
Dallas Fed President Robert Kaplan said that he is closely watching the “tough start” to financial markets in 2016, but said it was important not to overreact.Continue reading