After opening higher this morning, the market has drifted lower in a quiet Friday session. The ongoing nuclear crisis in Japan has made this a historic week in the world and a volatile week in the market. Trader’s have been unable to lean with any conviction in either direction given the explosive nature of the headlines following the massive 9.0 magnitude earthquake in Japan. There is still not definitive resolution to the nuclear meltdown fears. The situation has not deteriorated further in the last few days, but dangerously high levels of radiation have been detected as much as 20 miles from the Fukushima Daiichi power plant.
After a break to the downside out of the wedge pattern last week, the market was primed for lower prices. However, the devastating results from the earthquake were responsible for the big flush that came overnight prior to Tuesday’s session. The Dow opened nearly 300 points lower Tuesday amid fears of a full-blown nuclear meltdown that would have broad and severe implications for the environment, economy and population. Investors bought aggressively during the session though, erasing more than half of those overnight losses. On Wednesday, the action was quiet until the EU energy chief sent the market tumbling with warnings of possible imminent nuclear catastrophe. Thursday and Friday brought solid overnight gains for the market, but both days the market was unable to build on those gaps up. Today, the market has quietly trickled lower without resolution in Japan.
Watch the T3Live.com Daily Recap with Scott Redler below.
Investors were quick to react to the implications of the nuclear disaster. Early in the week, uranium producers were hit hard due to an expected aversion to nuclear power. In contrast, solar stocks have climbed amid expectations that governments will now tend towards cleaner and less volatile energy sources such as solar power. Coal stocks have also perked up for the same reason. While uranium stocks have had a difficult time bouncing, today the solars and coals are getting reeled back in by the weak market.
High beta tech, for the most part, has been weak during these troubling times. Much like the market, many leading tech stocks have been choppy and indecisive, showing signs they want to take off before failing. The biggest dog has been the largest component of the Nasdaq, Apple Inc. (AAPL). Apple is being weighed down by a number of concerns despite remaining fundamentally undervalued. Credit Suisse slapped a $500 price target on the stock earlier in the week, but supply chain concerns in Japan and reports that Steve Jobs may step down permanently have sent Apple tumbling in the short term. Apple remains well below its 21 and 50-day moving averages, and is coming back into support around $326.
Overall, it was a difficult week for active traders trying to time moves. When market moves are completely tied to headlines, it makes for choppy and unpredictable trading. It’s hard to predict the next step for the market because there are still so many unknowns in the world right now. While a cease-fire has been agreed in Libya, government forces continue to crack down on rebel strongholds, prompting President Obama to warn about possible international military intervention. Violence has ramped up in Bahrain, where Saudi troops have stepped in to crack down on dissidents. There remains the possibility of deterioration in the Japanese nuclear crisis, and even without a full-blown meltdown there appears to already be a significant amount of radiation headed towards Tokyo and its 30 million person population. Japan represents nearly 9% of the global GDP, and the country faces a massive rebuilding effort. The Group of Seven agreed today to take the rare step of intervening in the currency markets to prevent the Japanese Yen from appreciating too much.
Ultimately, less is more in this type of environment. While uncertainty and fear do create opportunity for investors and traders, this is a unique situation that requires a great deal of caution. We believe a macro buying opportunity will show its face in the coming weeks, but its best to limit risk and miss some of the move than get hurt trying to be perfect.
*DISCLOSURE: Scott Redler is long BAC, MCP, NYX, GLD, F; Short SPY, PCLN
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