Those That Rose the Most Sell the Most
- Market chooses from a multitude of reasons to sell, but in the end it is a situation of stocks and commodities racing higher finally getting overdone.
- Goldman reiterates its oil top position while other indications show some demand destruction.
- Germany sentiment falls, US small business owner optimism declines as well.
- Japan upgrades its nuclear disaster, realizes more economic harm than thought.
- Trade balance falls as imports decline while import prices surge.
- SP500, NASDAQ at the 50 day EMA after three downside sessions.
- Energy stocks trying to bounce late after the selloff. They will help tell the near term story along with leaders that are not selling hard.
- The selloff puts stocks in better position ahead of earnings, and now investors are looking for earnings to deliver.
MARKET SUMMARY
Those that rose the most sell the most.
The financial stations lamented continued selling in commodities, related stocks, and those stocks tied to the commodities areas, but after such a tremendous surge in commodities prices, gravity had to eventually take hold. Always does, it is simply a matter of when. The when was the pat three sessions and many stocks that galloped 20% in short order are giving up sizable gains over the short term, though they are still holding a lot of their rally gains.
To us it simply appears to be a situation of some areas overheating and now coming back rather rapidly. Of course there is usually a catalyst and Tuesday there were many relating to oil that had implications for other commodities given the tie to economic activity. Goldman reiterated its warning regarding oil and commodities price declines. Japan raised its nuclear level to the maximum at 7 and admitted it now sees a greater hit to its economy than first thought. Saudi Arabia has reduced production by 1.5M bbl/day on lower demand. MasterCard said its data shows a 3% decline in oil demand from last year. German economic sentiment fell sharply. US small business sentiment (NFIB survey) showed owner optimism falling.
Suddenly the run up in commodities prices looked to be speculation and prices are getting backed out rather rapidly. You would think they were collapsing judging by the financial stations coverage. Steep selling yes, but the rise was rather steep as well.
Stocks solid early and continued lower through midmorning. Then as our midmorning alert suggested, they found support and worked their way back up. They peaked the move with a couple of hours left, never getting back close to flat. After that they lost their drive and just drifted off toward the close. A bump higher in the last half hour helped, but the losses were pretty solid across the board with almost 1% declines on the large caps while the small caps licked a 1.35% decline and SOX fell over 2%.
After three days of selling, SP500 and NASDAQ are holding just over their 50 day EMA, having tapped those levels on the low and rebounded to close. SP600 is still well above that level. SP500 is still above the February low, and that is still a pullback that leaves SP500 capable of recovering in an inverted head and shoulders.
Retail sales and crude inventories are of interest on the economic front (scheduled, that is). The weekly mortgage report is out but its 2% expected decline won t surprise anyone. The way the news is flowing there could be several other unscheduled stories out as well; these are the times we are in. Will Japan make it three quakes in three days? Will the President put forth a budget that is really a budget versus a rich kid s Christmas list? Of course if it were it would have to tax the rich kid and /or his parents.
Earnings are starting their run with RVBD after hours (not lighting things up) and JPM kicks off the financials. As noted above, stocks have tested now and are in better position to take on earnings versus perched just below the February peak. That doesn t guarantee they rally on earnings, just in better position to make a move and take on the February peak (on SP500) if earnings are pleasing to investors.
Thus far the first few results are not running the market higher or lower. No, stocks, particularly anything tied to commodities and the world economy, are in a technical pullback. As noted in the Leadership section, however, there are several quality stocks and sectors that are holding their own and even moved higher in the overall Tuesday market decline. As we watch to see how the indices handle this pullback and either form a right shoulder to the inverted head and shoulders patterns or fail and sell further.
While energy stocks continued lower Tuesday, some have sold for four sessions and most were trying to bounce off the lows. They have sold pretty hard and a rebound is coming; how that rebound holds tells the next part of their story. Indeed, enough looked to be trying to bounce Tuesday that we did not close all of our energy positions.
We are continuing watching for quality stocks in pullbacks that hold support or set up some good patterns with play possibilities. At the same time if any bounce after this pullback fails that means more and deeper downside is to come. Then we add to downside plays and close out some more upside.
