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Markets sold off from the open today. Selling today was triggered by Friday’s disappointing nonfarm payrolls data. The selloff in stocks saw increased buying in Treasuries. Treasuries are up for the fourth consecutive session and have erased all of their losses following the March 13 FOMC meeting. Buying today has dropped the 10-year yield to a low today of 2.019%. This yield for a 10-year government security pales in comparison to the yield on many blue chip stocks currently.

Stocks in Asia were off Friday by over 1% based on the weak payroll number. The Nikkei was down for the fifth straight day Friday and is now in the midst of its longest losing streak since November. The country added 120,000 jobs in March, roughly half the pace from December through February, interrupting the strongest stretch of job growth since the Great Recession. 

There have been many divergences in the market the past several weeks. So, let’s start this week with fresh short term support levels for the S&P 500, Dow, NASDAQ and Russell 2000. Short term support levels for the major indexes are 1390, 13,000, 3052 and 816 respectively. Some of the levels were changed from what was given last week due to the movements in the markets at that time. If all four of these levels give way on a closing basis selling will intensify. Last week the S&P 500 moved above its near term resistance level. A negative divergence was created because the move in the SPX was not confirmed by the other indexes. If we get a close below support on just some of the indexes, though not all, buyers will step in. Based on the recent action of the markets, it is unlikely this buying will be a stampede. Intermediate term support levels are 1339, 12,730, 2899 and 784.

Equities rallied 3% in March and the Leading Economic Indicators were higher but mixed. Six leading indicators were up in March and five were down. This is a weakening in the trend after some superb numbers. Consumer sentiment continues to be a bright spot on the economic front. Consumer sentiment reached a recent high last week. From a contrarian perspective, improved sentiment from market advisors is giving a bearish signal. Currently just 21% of advisors are bullish. Typically, when advisors are that bullish the market sells off.

First quarter earnings season begins in earnest tomorrow. Alcoa is always the first major company to report. Google, Wells Fargo and J. P. Morgan are other important earnings reports coming later in the week. 

Over the past several weeks the spectacular rise in some leading stocks like Apple and Priceline.com have masked some early signs of weakness. The market has definitely become more selective in recent weeks. After the sharp advance we will likely see increased volatility as we enter the first earnings reporting season of 2012.

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About Thomas J Smith CFA

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