Sellers take control and push stocks lower

Was this the end of the “Bull Market”? The headlines, comments and talking heads would have you believe the end as we know is at hand. Being that I am not a speculator or prognosticator it is hard to argue for or against the rationals doled out the last month plus about the current market environment. What I do know is that the selling today confirmed the break of support yesterday on the S&P 500 index. As we discussed last night the break back below 1978 was a negative for the index and today confirmed just how negative it was. Our target is and has been 1910 if we broke support and with the close today at the 1950 level we still have some work to do, but it was a start on the move lower. The bigger challenge from my short term perspective is the potential break of the intermediate trendline off the November 2012 lows. The close was right at the trendline. This is all on our list of things to watch going forward. The direction as we have stated will unfold and today went a long way in defining that as the downside potentially. We have now retraced 62% of the move off the August low and if that fails to hold near term the 100% retracement is the 1910 target.

The bigger question from my view is a catalyst; what pushed the indexes lower? I am not sure we could give any one thing credit, but we could add them all up and toss on the top of the pile today’s economic data and give it the tipping point credit. Markit PMI was below August data, ISM manufacturing was well off the expected 58.5 with 56.6 reported, car sales were off with Ford down 3% and construction spending fell 0.8%… need we say more? It is easy to blame the economic data from today as the catalyst, but it is just the latest in a progression of data being stagnant or falling. Add in the global data of late and it confirms that the outlook remains slow to no growth. The key is to watch as it all adds up and as I stated in the morning notes, eventually it collapses under it’s own weight. Today attests to that fact.

Small caps remain the downside leader and was on our list of charts to watch last night. The Russell 2000 index declined 1.5% and broke the 1090 mark of support on the close. Without some type of news, data or report to reverse the downside move it could get uglier for the index. The short side of this sector has worked nicely the last two weeks and we will address that in the model holding the positions. Biotech was the one sector adding to the downside pressure as it fell 1.8%. This is not over and we have to remain diligent in managing the risk of the indexes, sectors and overall principle moving forward.

The biggest losers in the sectors were basic materials, telecom, industrials and energy. The others were better, but the damage was done as we headed into the close on the day. As we posted in the trading notes this morning it did open the door for some new short trades today in material, industrials and energy. The sellers were in control from the opening bell and now they are emboldened by the day and it will be of interest how the week plays out with the jobs report due on Friday.

The conclusion to the day… risk avoidance is the theme as traders raise cash and head for the exits. The longer term investors are sticking with it for now, but they have to be prepared to exit or raise cash should the longer term trendlines break. Plan your strategy and execute your plan with confidence. Don’t wait for the dam to break to seek shelter from harms way. Our morning update will address the new opportunities based on the result of the moves today. Remain patient, disciplined and focused on your strategy.