At the end of last week, we wrote that although the major indices closed at new multi-year highs once again, something didn’t feel right about the market. Despite a green close, the market just FELT heavy. We saw weakness in leading stocks, from the tech sector to the agricultural group. Well, today those warning signs led to a very harsh sell-off in the market that engulfed nearly two weeks worth of “churn higher”. The S&P fell more than 2% Tuesday while the Nasdaq dropped 2.75% amid escalating unrest in the Mideast and North Africa. If you needed any reminder, the market is more “stairs up, elevator down” than it’s ever been.
Today’s action saw widespread selling, while some of the sectors that showed weakness Friday accelerated to the downside today. The fertilizer stocks, The Mosaic Company (MOS) and PotashCorp./Saskatchewan (POT) being the ones we cover the most, were a disaster.
MOS actually charged higher to fill its pre-market gap before giving back all those gains. POT was a dog all day, shedding 5.5%. Some bought the dip last time in the ags with success, and it remains to be seen whether they can recover this time around. The group still has a long-term bullish fundamental story, but it this stage there seems to be some large market players taking profits.
High flying big cap tech stocks also continue to falter, highlighted by group leader Apple Inc. (AAPL). Investors continue to take profits amid concerns about Steve Jobs’ health, and the stock was down almost 3.5% today. Netflix, Inc. (NFLX) also continues to come in hard after its recent post earnings extension, dropping almost 6%. Baidu.com, Inc. (BIDU) also dropped more than 5%. The banks were also weak, with leaders Goldman Sachs Group Inc. (GS) and JP Morgan Chase & Co. (JPM) dropping 3% and 4%, respectively. And the list goes on.
The political turmoil is not negative for every asset class, though, as oil and precious metals got a hefty boost today. Oil prices surged about 9% as the unrest grows in Libya and is spreading to some of the biggest oil producing countries in the world. Silver continues to be a monster, with the iShares Silver Trust ETF (SLV) gaining 1.5% to tack on to an aggregate gain of around 6.5% Thursday and Friday last week on the breakout to new all-time highs. Gold was strong also, but continues to be the more subdued metal, the SPDR Gold Trust ETF (GLD) adding 0.65%.
Weakness was pervasive in the market today, and after a great fall, we’ll see if all of Ben’s horses and all of Ben’s men can put it back together again. This market has churned ever higher without much rest or many pullbacks since the now infamous Jackson Hole summit in late August, so this corrective type action is healthy both for active traders and long-term investors. For several weeks we had seen some erratic action that seemed to suggest a correction was imminent, however the market responded almost every time. But the longer such manic action goes on, the greater the likelihood that a significant correction will take place. They say championship teams are the ones that can win without hitting on all cylinders. Now it’s time for this market to prove itself by winning ugly.
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