Markets Test Lower As NASDAQ Struggles

On Wednesday we saw the S&P 500 index close at a new high. Today we see it move lower, but the real story is in relationship to the NASDAQ which fell 1% on the day. Scanning the more than 2500 stocks in the index the challenge comes from the biotech and electronic sectors. Healthcare was off 0.7% as a result of the biotech stocks and Technology was down 0.6% as result of the electronic stocks. The impact at the broader level doesn’t look like much transpired on the day, however digging down the 2-3% decline in the sub-sectors shows greater weakness within, and we all know that it eventually works itself outward. Thus we remain cautious as we head into tomorrows job report and the impact if the number is on the disappointing side.

ISM Services data was slightly below expectations at 53.1%. Weekly jobless claims rose 16k to 326K and grew more than expected. The trade deficit grew faster than expected to 42.3 billion. The market wasn’t concerned by the small miss in the data as the trading day began on the upside. The outlook hasn’t changed and as we head into earnings next week we will get an even clearer picture of what investors really think about stocks.

Moves worthy of NOTES:

The NASDAQ 100 index (QQQ) fell more than 1% on the day. After four days on the upside the index gave back nearly half of the gains. The move back below the 50 DMA was not a positive, but we continue to watch as this unfolds. The test is not a surprise, but the volatility continues to come at the hands of the large cap stocks. Scanning the index we find AMZN down 2.8% and below the 200 DMA. FB down 5.1%, EXPE off 3.8% and CELG down 3.2%. This weakness is keeping the index in check and the downside still a possibility going forward.

The Dow Index (DIA) remains near the highs with a small move lower on Thursday. The rotation to value from growth has helped the index move back towards the previous highs and to show more positive movements on days like Thursday. Still looking for a move above the $165.50 mark to keep the upside alive.

The S&P 500 index (SPY) held above support or the previous high at the 1882. Still looking positive towards an upside climb short term. The Financials will play an important role for the index going forward. Energy helped keep the broad index alive by posting a gain of 0.6% on the day. Utilities were up 0.3% and the rest were in negative territory. The index is holding up well for now, but keep your stops in place.

The VIX index bounced 3.2% off the lows to close at 13.5 and still shows a lack of volatility in the market currently. That has been a positive sign for the buyers, but the rumblings are on the side of the market being overbought. Complacent is a better word, but the tick higher on Thursday is worth our attention. 

Semiconductors (SOXX) remain at the near term high and I would look to add to position in the sector on any pull back or test in the sector. Uptrend remains in play and the momentum positive. 

Energy was higher again today as we stated above, the index followed through on the break higher and the energy related REITs are holding the move higher as well. XLE broke through the $88.50 level and is heading higher as money rotates into the energy stocks. XOP, IEZ and IEO are all breaking higher relative to the sector and positive pattern breaks. This is a sector worth our attention looking forward as the upside and pattern breaks are very positive.

How do we adjust and/or use the current data to help currently?

Started the quarter with a bang as the market reversed directions on positive economic data. The stage is being set for earnings as the follow through on the initial rise and test short term. The rotation is taking on some more twist this week with the addition of the energy sector. As stated the breakouts are positive and worth our continued attention going forward.

The movement from growth to value stocks surfaced again today in the selling of the stocks, but the Dow (DIA) remain in position to break higher as money continues to rotate. Small caps (IWM) remain in a positive trend off the bottom, but we have to watch the 1% dump lower on Thursday. Global markets (EFA) are hitting against the previous highs and testing today. Europe (IEV) is the the primary leader in the developed markets. There is still plenty to like about the global sector, but we have to proceed with caution as it unfolds.

Go to the Daily Trading Notes for more details of our strategy for the trading day.