The technical picture of the market is as weak as it has been in many weeks. The percentage of stocks that are in good shape technically fell sharply last week. There was a 10% decrease in stocks that are in either basing or advancing patterns on the S&P 500, falling down to 74%. Things are worse in the small cap land.
One of the concerns of late is the weakness in commodities and what that portends in terms of global growth going forward. Many argue that the slide in commodity prices is discounting a collapse in global growth in the near future.
At a time when the Federal Reserve Bank has been debating how to end QE, recent developments in the economy have shown a deceleration in activity that has also transmitted into lower commodity prices. Stocks have been extended for some time, but have recently pulled back to support; while internally, many sectors have already exhibited sizeable corrections since February and March.
As highlighted in a previous article, while the economy is on solid footing with little chance of a recession on the near horizon, there were some warning signs that we could be due for a soft patch in Q2.
The market opened up and rose higher to close up 1.4% by day's end. The market has recouped over half of yesterday's losses.
The S&P 500 suffered its worst decline since November of last year with a decline of 2.30%. The Dow was off by 1.79%. All sectors suffered losses today but the selling was magnified in the commodities-linked stocks. Just 7 stocks in the S&P 500 closed higher today. Selling intensified in the final hour of trading after news of the bombing in Boston broke.
While gold and silver bullion have fallen considerably since the highs reached in 2011, and mining stocks have fallen even more, I believe the weakness behind much of this move is due to the transition from the bull market in precious metals to its next phase.
Buyers stepped in the markets over the last few days as they reluctantly jumped back into stocks. The S&P 1542 support mentioned last week held on Friday, dipping below it briefly before commencing the recent rally towards 1593 today.
As highlighted in the last few “Market’s Bill of Health” reports, the S&P 500 has been showing weakening breadth and momentum which typically occurs before short-term tops. In prior reports it was shown that weakness in cyclicals was the culprit as the defensive sectors led by health care continued to power higher. Currently, however, recent movements in the cyclical sectors suggests that their underperformance to the broad market may be ending, with a weakening USD providing the catalyst.
Barry Ritholtz—money-manager, author of Bailout Nation, and writer for one of the top financial blogs in the country—recently spoke with Financial Sense Newshour about the "big picture" on jobs, the economy, and stock market. Here he explains another reason why the stock market continues to move higher while jobs go nowhere.
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