March 26, 2018.
Screen red, panic set in. The market saw sharp declines, the bears dominating price movement. None of this happened over the last few years. Last week, Wall Street succumbed to bears’ ongoing pressure – and in one week’s time, the major indexes all went into the red on the year. Take for example the S&P 500, which after last week’s bloodbath, is trading off 3.3% for the year.
Weekly Summary: The Dow Jones closed sharply off by 5.61%, the S&P 500 falling 5.89%. The NASDAQ toppled 7.31%.
For many months, the market has demonstrated nothing but indifference to every negative headline in the news. Experts made seemingly endless forecasts about how Trump’s brashness towards world leaders would sow disaster. The market, though saw no reason to give voice to the drama.
When the market finally entered a tailspin at the beginning of February, it had nothing to do with the economy, fundamentals or politics. The declines, rather, were caused by structural changes created by shorts on volatility. Last week, the market’s narrative changed, the technical snapshot eroding. The S&P 500 didn’t succeed in holding its ground at the 50-period EMA around the 2,750 point level. From thereon, a new dynamic was created and the negative headline grabbing news started provoking a market response. That’s one of the changes
the market is undergoing; news is beginning to bear an impact. Ever since the November ’16 Presidential Elections, the market entirely ignored the world of politics.
Despite the fact that practically all media outlets were unanimous in their disapproval of Trump, that had no effect on price movement in the market. Now, with the spotlight honing in on import taxes, the Federal budget and the ongoing political wrangling in the Oval Office, it seems that apprehensions in turn have been on the rise – and that these hot button issues will affect market prices.
The first sign that something had changed surfaced when stocks didn’t rally after the Fed signalled that presumably it would be hiking rates only 3 times – and not 4 this year. Even though the market’s initial reaction was to climb sharply, within minutes the gains disappeared, morphing into sharp losses. The stock market did not revel in the Fed Day announcement as it had almost always done in the past.
The negative response on Wednesday prepared the stage for a more dramatic response on Thursday, when the Trump administration announced that new tariffs would be placed on China. It was far from a surprise but it was the perfect trigger for more selling.
As of now, the negative technical environment is taking the reins. Support levels have failed, and leading tech stocks like Apple (AAPL) and Facebook (FB) are already trading at a downtrend and the bears have begun to talk about how we’re starting to see the beginning of a deep price correction, that they have salivated over for so long.
We were in this very same place in the past and the market, then, made one of the most impressive recoveries in history. At the same time, the chance that we’ll see additional losses now is high, especially if the retest to the February low in the 2,580 point area doesn’t hold water.
The change causing the biggest concern now in the market is that correction buyers have lost their confidence. Last January, the news that were pinpointed as the catalyst for the latest declines, were utterly ignored. Nowadays, no attempt is made to deny the gravity of news developments – and buy the weakness.
In a price movement environment like our own, there’s no choice buy to focus on preserving one’s capital. It could be that some traders have been compelled to drop positions that have reached their stop-loss, but that serves as nothing other than insurance against future negative momentum. These losses were unavoidable and had to surface sooner or later. There’s no doubt that some investors have been burned – and it could very well be that the market will seek out lower levels from hereon in. When push comes to shove, though, the more solid stocks – those which have fallen for no good reason – which have simply been swept up in the avalanche, will regain their former strength.
The prospects for interesting buying opportunities develop quickly. The key will be to carefully time your entry point. It’s important to recall that in an environment with downward pressure, that it’s a lot more effective to buy stocks with continued upward potential as opposed to trying to catch a falling knife precisely when it bottoms.
There’s a critical distinction between the two: buying the bottom and buying the trend are two diametrically opposed approaches. In summary: One can expect correction buyers to try to find their chance this coming week to make a move! The ball is in the hands of the bears who succeeded last week in creating true negative momentum in the market. But, can they keep the ball out of the hands of correction buyers who did such a stunning job over the last few years?!
Have a great trading week!
|Tuesday||9:00||S&P Corelogic Case-Shiller HPI||6.2 %||Medium|
|Wednesday||8:30||Wholesale Inventories [Advance]||0.5 %||Medium|
|Wednesday||10:00||Pending Home Sales Index||2.7 %||Medium|
|Wednesday||10:30||Oil Inventories||-2.6 M barrels||Low|
|Thursday||8:30||Jobless Claims||228 K||Medium|
|Thursday||8:30||Personal Income and Outlays||0.4 %||Medium|
|Friday||Good Friday – Market is Closed|
|TM||Toyota Motor Corporation||AM||Monday|
|DB||Deutsche Bank Aktiengesellschaft||AM||Monday|
|RHT||Red Hat, Inc.||PM||Monday|
|MKC||McCormick & Company, Incorporated||AM||Tuesday|
|LULU||Lululemon Athletica Inc.||PM||Tuesday|
|WBA||Walgreens Boots Alliance, Inc.||AM||Wednesday|
|VRNT||Verint Systems Inc.||PM||Wednesday|
|WOR||Worthington Industries, Inc.||AM||Thursday|
|SAIC||Science Applications International Corporation||AM||Thursday|
|STZ||Constellation Brands, Inc.||AM||Thursday|
Today’s Picks – Day Trading!
New York Strategy Swing
Today’s Picks – Swing “New-York Strategy”
No.1 – ACAD
|Company Name||ACADIA Pharmaceuticals|
|Sector||Healthcare | Biotechnology|