Investors Get Nervous and Sell

The opening bell offered some interesting twists on the trading day. First there was the IPO of Twitter that was dominating the headlines, but then there was the GDP for third quarter announced at 8:30 that boasted a 2.8% growth rate. Much better than the 2.3% forecast. The futures went from negative to positive and all was good for the open. The ECB popped a surprise interest rate cut on the markets which gave some positive momentum into the open as well.┬áThe index opened and moved to a new high at 1774, but after 15 minutes of fun, started lower and continued lower closing at the 1750 mark on the day down 20 points. What happened? The growth in GDP was built on a build up in business inventories inventories. And then there was the rest of the story…

Consumer spending slowed to a 1.5% increase from 1.8% in Q2. Business investments also were weaker up 1.6% versus 4.7% in Q2. Federal spending fell again for the fourth quarter, down 1.7%. Housing remained strong up 14.6% and exports (up 4.6%) outpaced imports (up 1.9%). The inventory was the bigger issue for investors as it could act as a drag on growth for the fourth quarter. Thus, the selling was sparked some by the data, but of course the primary reason from analyst was profit taking relative to the run off the October 9th low. Whatever the reason, investors took money off the table today and left the door open for more downside to continue tomorrow.

State of the Market:

The S&P 500 index broke the 1753 level of support and moved to 1747 on the close down 1.3%. Our near term target on the upside has been 1800 on the index and support remains at 1730 and 1690. The trend of the index relative to direction has been positive enough to keep the index in an uptrend with some sideways consolidation. The downside risk has been a possibility and with some selling today we have to see how this plays out tomorrow. The VIX index for the S&P 500 moved up to 14 and a move back above the 200 DMA could accelerate the downside move.

The NASDAQ shifted from sideways to lower today as well breaking support at 3905 and closing at 3857 down 74 points or 1.9%. The move filled the gap left on the move higher on October 18th. The challenge for the index has been the high beta technology stocks which started earlier this week to test lower. There were plenty of large cap stocks on the downside as well with PCLN, GOOG, AAPL and AMZN pushing the index down. How much more is on tap is the bigger question we face going into Friday.

The Dow move above the 15,700 level lasted all of one day as the index dropped 148 points to 15,593. The index gave up the least of the major indexes, but is still participating on the downside move. 15,531 is the level to watch for support near term and then 15,400. The move keeps the Dow in the current trading range.

The Russell 2000 Small Cap stocks returned to their struggling ways on Thursday. They broke support at the 1087 mark closing at 1079 and sitting on the trendline off the November 2012 low and 1065 the next support. The index has been warning based on the activity the last week plus and showing some topping in the index.

Other Sectors of Interest:

Energy is starting to develop as an interesting story. XLE fell back to support at $85 and the uptrend remains intact for the intermediate term, however the underlying fundamentals in the sector relative to the services companies, exploration, etc are getting questionable relative to price. The refiners have been leading, but if oil jumps again this could get dicey on price. It is time to dig in and find what is worth owning versus the risk of ownership going forward. Could be time to start locking in gains.

Twitter IPO is the new big thing in the news. I am already sick of it. The shareholders should be upset that the company left so much money on the table. If the price was really $45 they should have priced it there. That would have given the company and additional $1.5 B to find a way to make money. Not a fan of stocks with no earnings, but it will be the buzz for a few days. Watch the downside similar to FB, if it doesn’t materialize it could get interesting going forward. I will see how this unfold before putting money at risk.

Gold (GLD) broke below the $126.50 support. The news from the ECB on rate cuts should have pushed the price higher, but the comments on no inflation didn’t help that story. Thus, gold break support… now we look to test $123 on GLD. The gold miners were down 2.6% on the day as well. This remains are downside issue more than an upside trade from my view for now.

Europe returned to its tracking of the US direction. Despite the news from ECB this morning IEV fell 1.6% and country specific ETFs fell even more on the day. Japan tested lower moving down 1.8% with the yen rallying back from early selling. China (FXI) fell 1.6% to join the downside move on the day. The move back below the 200 DMA was not helpful to the chart.

What to Watch Tomorrow:

Jobs Report and Trading notes for Friday will be published early in the morning. Be sure to review them for updates on positions and new trade opportunities on the pattern trading list.