By Pete Biebel, Senior Vice PresidentPrint This Post
The Hallmark website lists tin and aluminum as the traditional categories for tenth anniversary gifts. What would you give? A whistle? A hubcap? A martini shaker? A canoe?? You probably saw a few articles over the weekend proclaiming the tenth anniversary of the bull market. March 9th, 2009 was the day of the closing lows for most of the popular averages. Yet, while that low was ten years ago, it might be a little generous to say that the bull market is still intact.
Some would argue that the bull market ended at the highs in January of last year. True, all the major averages made slightly higher highs last summer, but those subsequent gains were relatively minor and were largely the result of gains in a relative handful of tech and internet stocks. Four of the eight S&P sectors that made new highs in the winter of 2018 have, so far, been unable to exceed those highs. January of 2018 was probably also the peak in investor bullishness and market breadth.
Others might argue that all that matters are the price levels of the leading indices. In that case, the bull market made it to at least 9 ½ years when the averages hit their current record levels late last summer. Since then, most of the indices have suffered a 20+% decline into their Christmas Eve lows. And, though stocks have had a spectacular rally through the first two months of 2019, they’re still a long way from new highs. If you bought an anniversary gift for the bull market, hang on to the receipt.
Last week, for the second week in a row, Monday’s price action was a negative omen. For the second successive Monday, stocks gapped-up on the opening driven higher by news that a resolution to the U.S./China trade war was at hand. Again, those opening gains proved to be the highs of the day (and the week) as the averages, again, quickly reversed and slumped into the red for the day. A week ago, I warned, “If good news results in just a flash-in-the-pan rally that is quickly reversed, it will likely be a sign that an overdue phase of resting and retracing has begun.” Like last week, the averages continued lower on Tuesday. Unlike last week, they also continued lower on Wednesday.
Thursday was the back-breaker. Stocks gapped lower that morning; both the S&P 500 Index (SPX) and the NASDAQ Composite Index (COMP) bounced off their respective 200-day moving averages at their morning lows. Prices rebounded a bit into early-afternoon, but a late wave of selling pushed both COMP and SPX back below their 200-day MAs, and both indices closed below those key levels for the first time since climbing above them about three weeks ago. Like last week, trading on Friday featured a last-hour, end-of-the-week rush of buying, but the major indices still ended the day with their fifth consecutive losing session. For the week, the major averages lost between 2% and 2 ½%.
Last week I wrote about how trading action had been displaying more negative symptoms. A week ago, those symptoms were fairly minor, but with five successive losing sessions and the failure of the 200-day averages to support the market, the diagnosis has gotten much more troubling. The Russell 2000 Index of small-cap stocks, which I cautioned last week could be a leading indicator for the overall market, fell more than 4% last week. The Dow Jones Transportation Average has declined for eleven straight sessions, its longest losing streak since 1972. Worse, COMP and SPX, as well as several sector indices, had key reversal weeks; they made new rebound highs, but closed below the lows of the prior week.
Speaking of sickly, the S&P Healthcare sector, which set its record closing high just over three months ago, is suddenly looking a little green in the gills. The sector had recovered about 80% of its late-2018 skid into late-February, but recent losses in Biotech and Pharma stocks have pushed the Healthcare sector back below its 200-day moving average for the first time in nearly two months. The Consumer Discretionary sector has traced out a very similar pattern. It too dipped back below its 200-day MA late last week. I’ll be watching to see if, and to what degree those sectors can climb back above those key moving averages. I’ll also be watching the Industrials sector and the Technology sector, which are hovering just above their 200-day MAs, to see whether they’re able to bounce or if they too fall below those moving averages.
For the first time this year, the market is hinting that the rebound rally might finally be kaput. So far, the pullback is minor in comparison to the prior two months’ rally. If SPX can hold above the 2600 level, then there’s a pretty good chance that the market could see new highs later this year. SPX closed near 2743 on Friday, about 200 points below its record high. A couple weeks ago I would have guessed that SPX was about a 2-to-1 favorite to make a new high this year. The market’s recent deterioration has reduced those odds, but it’s still about a 50:50 shot. (Just thinking ahead… The category for the traditional eleventh anniversary gift is steel. I’m thinking steak knives or a manhole cover.)
I think the two key levels for SPX in the coming weeks will be the 2675 – 2680 area and the 2600 level. Sustained trading below 2675 would indicate that a deeper, extended pullback was likely. Such a development might be a signal to take more defensive steps for more tactical investors. Sustained trading below 2600 would revive the prospects for a test of the December lows and decrease the probability of a new market high this year to something around just 15 to 20%.
This week brings a long list of economic reports. The market will be watching the Retail Sales, CPI and PPI numbers in particular. Friday brings the year’s first “quadruple witching” expiration of stock and index options and futures. It will very likely be the highest volume day yet this year, but not necessarily an unusually volatile day. Friday is also the Ides of March, the 2063rd anniversary of the murder of Julius Caesar. I’ll have to check that one on the Hallmark website.
|Monday 3/11/2019||Retail Sales, M/M||-1.2%||0.0%|
|Retail Sales, less Autos & Gas, M/M||-1.4%||+0.2%|
|Business Inventories, M/M||-0.1%||+0.6%|
|Tuesday 3/12/2019||NFIB Small Business Optimism Index||101.2||102.8|
|Consumer Price Index, M/M||0.0%||+0.2%|
|CPI, less Food & Energy, M/M||+0.2%||+0.2%|
|Wednesday 3/13/2019||Durable Goods Orders, M/M||+1.2%||-0.8%|
|Durable Goods Orders, ex-Transportation, M/M||+0.1%||+0.1%|
|Producer Price Index, M/M||-0.1%||+0.2%|
|PPI, less Food & Energy, M/M||+0.3%||+0.2%|
|Construction Spending, M/M||-0.6%||+0.3%|
|E-Commerce Retail Sales, SAAR||+3.1%|
|Thursday 3/14/2019||Initial Unemployment Claims||223K||225K|
|Import and Export Prices, Import Prices, M/M||-0.5%||+0.3%|
|Import and Export Prices, Export Prices, M/M||-0.6%||+0.2%|
|New Home Sales, SAAR||621K||620K|
|Friday 3/15/2019||Empire State Manufacturing Survey||8.8||10.0|
|Industrial Production, Production, M/M||-0.6%||+0.4%|
|Industrial Production, Manufacturing, M/M||-0.9%||+0.4%|
|JOLTS Job Openings||7.335mm||7.155mm|
|“Quadruple Witching” Options & Futures Expiration|
Links to previously published commentaries can be found at benjaminfedwards.com/Company News/Blog/Market