Today was a combination of worry, talking and reacting. We have discussed the issue with self-fulfilling prophecy with the talking heads and analyst all banging on the market about valuations. The comparisons to 1987 and 1994, etc. etc. Then there are the hedge fund managers that come on television and talk about their holdings to add to the drama. Soros 13F filing showing a big bet on the downside for the S&P 500 index added to the fun on Thursday. When the day ended the S&P 500 index was down 1.4%, NASDAQ off 1.7% and the Dow 1.4% lower. Just a good old day of selling. No the sky isn’t falling, just stock prices, thanks to the media and analyst who wanted this move. How far does it drop? Therein lies the challenge… I say adjust your stops accordingly, (as we did, and hit some of them today) keep your focus, and let this unfold one day at a time.
Cisco’s guidance was lower than expected and they eliminate 4k jobs to push the stock down 7.1% on the day and in turn, help the NASDAQ move lower. Chip stocks (SOX index) were down 2.2% as well and broke a key support level at $63.75 on SOXX (iShares PHLX SOX Semiconductor Index ETF). Wal-Mart disappointed on earnings as well prior to the open and fell 2.6%, and pushing retail (XRT) downs 2% and the consumer services sector (XLY) was down 1.7%. The retail sales for July were already a disappointment for the sector and the earnings only added to the negative sentiment. The earnings data along with all the worries combined to add to what was already a negative sentiment building for the broad markets and the selling broke out.
Bond yields are reacting to the mounting consensus the Fed will cut stimulus starting in September. The 10 year yield was 2.75% up 4 basis point and the 30 year yield was 3.8% up 4 basis points as well. The bond ETFs fell 0.5% for IEF and 1.3% for TLT. The short plays in TBF and TBT were higher as a result of the move. The Fed may not want to raise rates on overnight funds, but the market is doing it on the consumer rates as they perceive nothing good coming out of the September FOMC meeting for bonds.
Commodities were higher again as gold climbed 2.2% to $1363 and pushed through resistance at 1340 and opens the way to $1392. Silver (SLV) was up nearly 5% and closed at resistance of $22.15, but has gained 18% over the last six trading days. Palladium (PALL) broke through resistance as well gaining 3.2% on the move. Base metals (DBB) have been gaining ground as well breaking above resistance at $16.70 and they continue to move back towards the $17.75 target on the breakout. Oil was up 0.3% to $107.18 as the price of crude continues to climb slowly. Gasoline (UGA) was up on Wednesday, but flat today. DBC, PowerShares Commodity index was up 0.9% on the day to show the overall move in commodities. We have added some positions in the sector of late and today they were the benefactor.
Technically there was some damage done across the sectors today. As we discussed on Monday, the Dow 30 Index has been the weak link and it fell to 15,113 (15,080 next support) breaking the 50 DMA and 15,300 support on higher volume. The uptrend line is now in play for the index to be broken. This is the index we pegged to have the most trouble coming into the week. The NASDAQ has joined in as earnings from several of the large cap along with some mounting weakness in the NASDAQ 100 index accelerated the downside and moved aggressively towards the 3570 support. PCLN closed the gap from the jump on earnings last week, GOOG broke $880 support and is testing 857 key support on Thursday. INTC broke below the 200 DMA and maintained the downtrend already in play. CSCO broke it’s uptrend line and the 50 DMA creating a negative for the stock. AMZN broke below $290 support and is testing the $282 level. Watch how the technical data develops from here to determine confirmation of the downside continuing or a bigger sell off and then a bounce higher.
Breaking the sectors down technically shows equally some damage done worthy of our attention short term. Financials (XLF) broke support at $20.35 and sits on the 50 DMA on the close. Uptrend still in play, but in the process of testing the trend. Consumer Staples (XLP) broke support at $40.75 and the 50 DMA. Watch to see how it plays out moving forward. Consumer Services (XLY) fell to the 50 DMA and broke support at $59. Small Caps (IWM) broke $103 support and could test $99.50 level of support? Industrials (XLI) and Utilities (XLU) both broke key support levels and we are watching to see how that unfolds as well. The VIX index jumped to 14.73 and a move higher will only indicate more downside short term for stocks. VXX was up 5.3% on the day as a result.
The bottom line… not a good day for most indexes and a test of resolve for most investors. As we discussed above, there is plenty to pay attention to going forward. How the market responds going forward will give us plenty of insight in the direction or trend. For now we adjust our stops, exit where stops are hit and keep moving forward looking for simplicity and clarity for our portfolio.