Monday, April 7, 2014

That screeching sound is the market losing momentum

By Dave Fry

The report on Friday showed 192,000 jobs vs. 206,000 expected and the prior report was revised higher to 197,000 from 175,000. The unemployment rate remained at 6.7% vs 6.6% expected. Inside the numbers though conditions weren’t that rosy.

In fact, looking at Janet Yellen’s “dashboard,” many data points weren’t positive including: declines in wages from 0.4% to 0.0%; only 1,000 new manufacturing jobs created; temporary Help came in at 29,000; retail was just 21,000 and leisure and travel was a mere 29,000 — not to mention that in combo these jobs are dominated by low-wage paying part-time work.

Plus, underemployment, the labor participation rate and the long-term unemployed numbers are still bothersome. 

Overall the report is dovish for the Fed, as these data points were so weak the Fed is less likely to raise interest rates any time soon.

So, why the market decline?

Bulls are too complacent and too many sectors were overstretched. Social Media /quotes/zigman/7289836/delayed/quotes/nls/socl SOCL -3.69%   and Biotech /quotes/zigman/85342/delayed/quotes/nls/ibb IBB -4.01%   are two sectors exemplifying this condition. These sub-sectors in turn spilled losses over to larger parts of the market, notably the NASDAQ 100 (down 2.33%) and other major markets like small-caps. However, overseas markets for the most part were able to avoid much of the selling.

Some will view Friday as a key reversal day for the larger indexes especially, and only next week will tell if that’s indeed the case.

Leading market sectors higher included bonds /quotes/zigman/1480195/delayed/quotes/nls/tlt TLT +0.67% ,  gold /quotes/zigman/41663/delayed/quotes/nls/gld GLD +1.33%   silver /quotes/zigman/417006/delayed/quotes/nls/slv SLV +0.52%  , agriculture /quotes/zigman/448143/delayed/quotes/nls/dba DBA +0.96%  , oil /quotes/zigman/413712/delayed/quotes/nls/uso USO +0.80%   Latin America /quotes/zigman/291163/delayed/quotes/nls/ilf ILF +0.84%  , Brazil /quotes/zigman/264176/delayed/quotes/nls/ewz EWZ +1.03%  , Mexico /quotes/zigman/260604/delayed/quotes/nls/eww EWW +1.13% , Canada /quotes/zigman/260275/delayed/quotes/nls/ewc EWC +0.54%  , and Australia ( /quotes/zigman/260252/delayed/quotes/nls/ewa EWA +0.31%  .

Leading market sectors lower included: tech /quotes/zigman/105934/delayed/quotes/nls/qqq QQQ -2.66%  , small-caps /quotes/zigman/260873/delayed/quotes/nls/iwm IWM -2.31%  , midcaps /quotes/zigman/585450/delayed/quotes/nls/mdy MDY -1.53%  , S&P 500 /quotes/zigman/714403/delayed/quotes/nls/spy SPY -1.18%  , Consumer Discretionary /quotes/zigman/246177/delayed/quotes/nls/xly XLY -1.66%  , Industrials /quotes/zigman/246332/delayed/quotes/nls/xli XLI -1.15%  , Biotech /quotes/zigman/85342/delayed/quotes/nls/ibb IBB -4.01%  , Healthcare /quotes/zigman/246154/delayed/quotes/nls/xlv XLV -1.66%  , Transports /quotes/zigman/333256/delayed/quotes/nls/iyt IYT -1.37%  , Semiconductors /quotes/zigman/7871052/delayed/quotes/nls/smh SMH -2.47%  , Financials /quotes/zigman/246222/delayed/quotes/nls/xlf XLF -0.98% ,  Solar /quotes/zigman/8748213/delayed/quotes/nls/tan TAN -1.68%  , Homebuilders /quotes/zigman/1496092/delayed/quotes/nls/itb ITB -0.49%  , China /quotes/zigman/357940/delayed/quotes/nls/fxi FXI -0.34%  , Emerging Markets /quotes/zigman/322623/delayed/quotes/nls/eem EEM -0.27%  , Japan /quotes/zigman/260387/delayed/quotes/nls/ewj EWJ -0.44%  , and Europe /quotes/zigman/1490143/delayed/quotes/nls/vgk VGK -0.40%  .

­­­­­­­­We posted a short video of Market Vectors Oil Services ETF /quotes/zigman/7870964/delayed/quotes/nls/oih OIH +0.18%   that contains weekly chart views and shows OIH rising with other natural resources and/or energy-based ETFs.

Chart of the Day: Global X Social Media ETF (SOCL)

The top 20 market movers by percentage change in volume whether rising or falling is available daily.

Volume was quite heavy which is typical for sell days. Breadth per the WSJ was negative but not yet a 10/90 day.

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The NYMO is a market breadth indicator that is based on the difference between the number of advancing and declining issues on the NYSE. When readings are +60/-60 markets are extended short-term.

The McClellan Summation Index is a long-term version of the McClellan Oscillator. It is a market breadth indicator, and interpretation is similar to that of the McClellan Oscillator, except that it is more suited to major trends. I believe readings of +1000/-1000 reveal markets as much extended.

The VIX /quotes/zigman/2766221/realtime VIX +4.41% is a widely used measure of market risk and is often referred to as the "investor fear gauge". Our own interpretation is highlighted in the chart above. The VIX measures the level of put option activity over a 30-day period.  Greater buying of put options (protection) causes the index to rise.

Friday marked a potential serious reversal. But accidents happen in markets this amped-up. Volume rose on selling and it’s clear bulls had no stomach for a fight with bears. They may be thinking, “let them have their day and we’ll buy ‘em cheaper next week”.

I was impressed by the lack of investor fear as indicated by a tame VIX.

Next week doesn’t offer much in the way of economic data. However, it does begin the next quarterly earnings reports.

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