Market craziness continues, or is it the new normal? Obviously this type of unusual trade to say the least will not continue with 500-1000 point gains and losses, but it seems like volatility is here to stay. The basic principles still must be adhered too and one simple one is the major averages to being unable to CLOSE above their 50 day SMA. We know the longer they remain below 50 day the worse off. It is not a penalty to slice the line as stops are triggered there, and trade can become choppy but a quick resolution is required. Combine that with the volume surge below the line and one has to conclude that this is a market where rallies are to be SOLD until proven otherwise. For the week headed into Friday the S&P 500 and the Dow have surrendered 6.5%, and the Nasdaq 6.4%, and this is on top of the outsized losses last week with the big three slumping between 3.5-4.1%. Each of the aforementioned indexes recorded bullish piercing line candles on Tuesday and I did think they would be retested but the intraday lows are very likely to be taken out. In fact the S&P 500 CLOSED below 2593, and the Nasdaq under 6824, so those two are negated (the Dow would need to finish under 23778). Perhaps the 200 day SMAs will offer refuge. A move below that long term secular line would be very bearish as we know very little good tends to happen underneath it.
Looking at individual groups of course there were no winners, just good effort awards. It went to the utilities that fell “only” 1% on an ugly day Thursday. Five of the nine sectors were lower by 3% of more with the financials taking the a 3.7% haircut as the XLF recorded its third loss of 2% or greater in the last five sessions (2/5 lost a whopping 5%). This ETF demonstrates just how volatile this market has become, as it was an instrument that traded very tight. You have to go back 5 months to 9/5/17 to see a daily drop of more than 2% before this very recent erratic behavior. The XLF is now down 7.5% for the week and that is the greatest weekly loss, still Friday to go, (the week ending 1/8/16, 25 months ago, that cratered 7.3%) in the last 5 years. Many believe a market can not be truly healthy without a vibrant financial sector contribution.
There is an old saying never fall in love with a stock. Many claim just to rent them, as long as they are good tenants. No matter how good a chart looks that happens to be good advice. Your stocks should be your employers to give you extra income through capital preservation or dividend yield, or both. But if the name starts to act poorly, one should sell or let go the name. Below is a prime example of a name that looked excellent, and indeed it did. This is a good illustration regarding PRICE action as well. The NTGR chart here how it was profiled in our Monday 1/29 Game Plan looked ready to roll, however the bull flag trigger was never taken out on an intraday, but much more importantly on a CLOSING basis and those that attempted to front run the idea have felt the pain. The stock slumped 15.4% after earnings on 2/7 and is now 22% off most recent 52 week highs and volume this week is almost certain to be the heaviest in the last 5 years. Let PRICE action be your guide.