US Market Review for Oct 8 2014

8/11/2019 US Market Review for Oct 8 2014

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10/8/2014

US Equity Market Review


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Summary

As illustrated in the charts to follow there is a consistent theme UGLY ! Most charts have either brokentrend and support, or are now testing critical support. The smaller the cap size, the riskier the asset class,the deeper the deterioration. Its classic de-risking. Given most investor portfolios tend to hold large well

known names, there hasnt been much griping yet - as the S&P 500 has, at least up until the last few days,been mostly spared. However, that is changing now as sellers climb up the quality ladder.

When looking at the current technical picture, one has to put some context around the recent action.Recent weakness is coming on the heels of most markets enjoying robust rallies, with nary a correction sinceDecember of 2013. These extended rallies, fueled by excessive margin use and mutual fund managers havingexpended almost all their cash are now breaking down faster than Lindsey Lohan at a rave ! Thus, marketsare more vulnerable to a deeper sell-off since buying liquidity has been eroded.

That said, we think the breakouts to all time highs over the last 6 12 months may suggest a secular bullmarket is at hand, however, cyclical corrections can and will occur during secular advances . Additionallythey can sting pretty good ! For now, and in our opinion, it makes sense to be defensive and let everyoneelse get banged up in the storm. We prefer keeping dry powder as the evidence suggests the path of leastresistance is down.


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FusionIQ Technical Scoring Ranks

If there is one data set that bothersme more than any other, it is themassive deterioration in number ofstocks/ETFs in FusionIQ ranked 70or > (light green bar ) over the past3 months .

As illustrated to the left, approximately4,500 issues were ranked 70 or > just3 months ago, and now its just a littleover 2000. Couple this data withrecord levels of margin use, aproblem as stock prices go down, andlow mutual fund manager cash levelsand it appears the market is breaking

trend with a lot of potential supply inthe market.

While we would argue the market maybe in a secular bull over a longerdated time, however there is nothingsaying a painful pullback/retest of thebreakout spot cant develop first.


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SPDR S&P 500 ETF (SPY) -Daily Chart

The S&P 500 ETF SPY is testing a very valid trend band ( greenlines and arrows ). Additionally, the key support band near 1,900(gray band ) is also being closed in on ( this corresponds to 1,900

on the S&P 500 ).

The more something is tested, the more likely it is to eventuallybreak. We think this time the S&P 500 has run out of luck.


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Russell 2000 ETF (IWM) - Daily Chart

The Russell 2000 ETF IWM broke its uptrend band ( green lines ) afew weeks ago and has continued to drop. Yesterday, the ETFbroke below its key support band near 108.50 107.50 ( grayband ).

While oversold bounces can occur at anytime, this looks like realselling and a real break. Path of least resistance remains down.


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Powershares NASDAQ 100 ETF (QQQ) - Daily Chart

The Powershares NASDAQ 100 ETF (QQQ) broke its up trend line

(green lines ) and a support band ( gray band ).

Next major support is not until 92 ( purple band ).


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NASDAQ Transportation Index - Daily Chart

We like to look at the NASDAQ Transportation Index as it is muchbroader with 57 members, versus the more widely followed DowJones Transportation Index, and it 20 members.

As illustrated, this index has broken trend ( green lines ) andsupport ( red band )


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SPDR Mid Cap 400 Trust (MDY) -Daily Chart

Like its small cap brethren, the S&P Mid Cap 400 ETF MDY hasbusted its trend already ( green line ).

Like its small cap peers, the path of least resistance for mid capsis down as well.


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SPDR KBW Bank ETF (KBE) Daily Chart

The KBE Bank ETF (KBE) is heading for a major support test ( grayband ), after breaking several trend lines ( green lines ).


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iPath S&P 500 VIX (VXX) -Daily Chart

The iPath VXX ETF recently broke a downtrend ( redlines and arrows ) and is now closing in on a breakoutnear $33.


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Market Vectors Oil Service (OIH) - Daily Chart

OIH, this is what can happen when you disregard a trendline and support break a fast melt off !!


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German DAX Index (DAX) -Daily Chart

Checking in on Europe another market, another keytrend line test ( green line ).

US Market Review for Oct 8 2014

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