And that’s what caught my eye today. It certainly got my attention, too, as I watched the violent down action across the board in general, especially how the leaders reacted to everything. No mercy there. Money did not rotate in to those stocks we have gotten used to seeing hang in well when the market drops on any pullback. The carnage was across the board. A change in character, which by the way, isn’t unexpected to some degree as many of these leaders were up on a very high pole due to the bull market that topped in April. The run off the February lows was astounding in many cases and the leaders were the beneficiaries. Watching them get clobbered was strange, but really necessary, if they are to have any chance for longer-term gains from here.
When something is new and unexpected you take notice. It’s no shock to see the secondary stocks take a big hit, but when we see a change in the action that’s out of the norm, we tend to get shocked by it all. That’s what happened today. Apple (AAPL) crushed. Baidu, Inc. (BIDU) crushed. Cree Inc. (CREE) crushed. Walter Energy, Inc. (WLT) crushed. Flowserve Corp. (FLS) crushed. FedEx Corporation (FDX) crushed. Google (GOOG) crushed big time, probably the worse, down more than 24for the day. But the list goes on and on.
No matter what sector you went to, the leaders were taken out and shot. The fact that it happened in so many different sectors, again, reminds us that it was across the board and not just a weird once off situation. Everything sector. Basically, every leader took it on the chin. The bullish music hit a sour note today. One we need to take notice of. One we can’t just ignore, although, we’d probably all like to. One that says we can no longer be sure all is well, although it may very well be. Too early to know for sure on that front. Time will tell us that and I’ll go over the numbers in this letter.
Futures were up yesterday evening. Not by much but up some. As the evening wore on they started to edge lower. Not rock down lower but edge lower. When I woke up this morning they were bad but not nasty. Dow down 45. As we got within an hour of the opening bell they deteriorated more. Then, with about 30-minutes to go, they took a very sudden hit lower. The Dow from 70 to 120. The S&P 500 from 7 to 12. The Nasdaq from 12 to 26. Very fast. Very sudden and thus a very nasty gap down open took place.
There was no stopping the carnage right out of the gate. No hesitation. Just a trend down day all day without a break. The Market closed off the lows and actually held those 50-day exponential moving averages but not by much. The overall action was poor at best and at the least tells me what I thought was occurring in that the market is going to need a long period of time to work off the overbought conditions that existed and to also work off negative divergences at the top and those horrible sentiment numbers.
We sent out a chart showing the S&P 500 bigger picture chart. We showed how important those 50-day exponential moving averages are but even more importantly, how critical it is for the market to hold its longer term up trend line which comes in at that major horizontal support level of 1151. If this market were to close significantly below 1151 and have trouble getting back over for a few days it would be safe to say that the bull market has ended. We’d have to check divergences on such an important break, but at the very least, the market would be in some very serious trouble.
Like I said earlier in this report, when a market gets very overbought for a very long period of time and then cerates negative divergences and has a 36% spread in bulls to bears, when the selling hits, it’s likely to last quite some time. Handles need to mature and they can take months. Sometimes many months of boring up and down. Maybe the handle goes down as far as 1151 or that critical up trend line of support. If this bull market still lives, I wouldn’t expect a move back over 1220 for many months. In the worst case scenario, the market has put in an important top that has now begun to turn over in to a bear.
There is no way to know that and we have already had some great unwinding in those daily oscillators which gives the bulls hope that there’s more to come in time. If we lose 2411 on the Nasdaq and 1171 on the S&P 500, or those important 50’s, then a move down to S&P 500 1150 is likely, and from there we see if the bull still lives if it’s over. For now, the market must be respected as being in a bull market until we lose 1151 with force. That will NOT be easy for the bears.
Peace,
Jack
