Today's Market Observation 10.22.2009 Mon Tue Wed Thu Fri Goldberg Archive
Key Former Leaders Suffer Hangover After Dow 10,000 Party
BY MARTIN GOLDBERG, CMT | october 22, 2009
The US market enjoyed the euphoria of seeing the Dow surpass the 10,000 benchmark concurrently to a media blitz amongst major money management companies to once again draw in the public further into what on the surface appears to be a new bull market. The timing is right because those that were shaken out of the market are probably feeling lonely about not having their portfolio’s fully engaged in the big rally. In the meantime, the professional ranks would seem to be totally bought into the rally and so now with all their money in the market, all they can do now is talk and cheer.
However, it is likely relevant that all is not well with the market’s action. In fact there is significant evidence within at least two leading sectors of the market – financials and consumer discretionary - to suggest that the market may be beginning to roll over from bull to bear. For example, over the last 6 trading days (October 14th through 21st) the S&P Financials are down 4.2%. Similarly, the S&P consumer discretionary sector is down 2.2%. Some key “downs” are summarized in the table below:
S&P Financials – Notable “Downs” |
Change in Stock Price (Oct 14-21st) (%) |
Marshall and Iisley (MI) |
24.2 |
MBIA (MBI) |
16.12 |
State Street (STT) |
14.55 |
Bank of America (BAC) |
11.19 |
Wells Fargo (WFC) |
7.79 |
JP Morgan (JPM) |
6.77 |
Charles Schwab (SCHW) |
6.54 |
Below are some key “downs” during this timeframe in the S&P consumer discretionary sector.
S&P Consumer Discretionary – Notable “Downs” |
Change in Stock Price (Oct 14-21st) (%) |
Lennar Homes (LEN) |
9.94 |
Gamestop (GME) |
10.01 |
Macy’s (M) |
8.93 |
Coach (COH) |
5.75 |
Sherwin Williams (SHW) |
8.82 |
Wynn Resorts (WYN) |
7.21 |
Within the consumer stocks, the auto parts sector, which was a market leader even before the March bottom, is now greatly lagging the overall market. Here, the intermediate (months to year) picture is bearish. Below is the weekly chart of one stock in this subsector – Autozone. The 50-day moving average is down, illustrating at least a correction and at most, a downtrend.
The picture in the homebuilder sector is also bearish in the short to intermediate term. Note the double top (August and September), and the lower low (October). The 270 level would seem to represent a neckline and a dividing line as to whether to give bulls or bears the short term benefit of the doubt.
Finally, the price/volume relationships in the US market seem to be pointing to distribution. Over the last couple of weeks, the “up” days have occurred on low and the “down” days on high volume.
The foregoing data shows that the market appears to be under some important distribution within the context of an apparently bullish backdrop. Yet the preponderance of bulls suggests that the bullish backdrop will not end overnight. The market may continue to be under distribution while going up marginally. My expectation is that the current market behavior will continue for a period of weeks to a couple of months. There is bullish seasonality to contend with (remember the term “Santa Claus Rally”?). During this time, the positive breadth will continue to deteriorate as there will be additional sectors and stocks moving through a downward trending 50-day moving average. In the beginning of ’10, a significant correction or worse will occur.
This analysis would be shown to have been incorrect if last week’s highs (S&P 500 level of 1100) were decisively taken out to the upside along with an improvement in the price/volume trends.
Today’s Market
Between the drafting of this article last night and now the market rallied to near the highs on the S&P albeit on tamer volume than yesterday. The market was led by many of the same stocks that performed badly over the last few days. So this one day microcosm presents more of the same. The market may continue to rise with additional optimism during this favorable season with narrowing leadership and continued distribution. If the price volume trends change toward higher volume during favorable price action (and lower on down days), scrap this analysis.
Martin Goldberg
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