The sudden bearish turn last week in the market -- after hitting new highs the prior week -- has come fast and furious as selloffs are wont to do. And the pullback might have further still to go. But there are several reasons to expect a stabilization or bounce during this holiday-shortened week, and in any case I still expect that it eventually will turn out to be a great buying opportunity leading to higher prices later in the year.
Although the large caps set new highs early on Friday, small caps and NASDAQ have not come close to their prior highs. Friday closed with extreme weakness across the board, and it was on high volume. The technical picture and our fundamentals-based sector rankings have both taken a bearish turn, so we might see more weakness ahead.
As Q1 of 2014 comes to an end, we can see that January was extremely weak, February gained it all back, and March treaded water. At this point, as we head into what has been the strongest month of the year over the past 20 years, signals are mixed, with a steadily recovering economy and bullish fundamental indicators mixed with neutral technical and some bearish sentiment indicators.
Bulls continue to climb their wall of worry, as uncertainty from the latest “bricks in the wall” created by Russia in Crimea, slowing growth in China, and Fed tapering fades into the mosaic.
The weakness last week in U.S. stocks was entirely expected. As I mentioned in last weekend’s article, the technical condition had become quite overbought and the market was overdue to take a breather and pull back a bit. Also, our SectorCast rankings had moved from bullish to a more neutral bias.
After a requisite knee-jerk selloff, stock market bulls shook off Russia’s military action in Ukraine and Crimea as just another buying opportunity. Even adding the Russian Bear to their arsenal couldn’t give bears the upper hand for long. The S&P 500 large cap index set yet another all-time intraday high and closed at a new record high on Friday.
Facing formidable resistance and the threat of an ominous triple-top sell signal if bulls lost their battle, U.S. stocks appear to have successfully navigated a critical crossroads by finding the wherewithal to break out to new highs, with blue skies above. Among the ten U.S. business sectors, the performance leaders last week were Consumer Services, Consumer Goods, Industrial, and Financial.
Stocks continue to consolidate just under their prior high, which is offering formidable resistance. Although many long-standing uncertainties have significantly subsided, others have arisen, including turmoil in a new global hot spot (Ukraine) and the disruptions to the economy caused by the unusually long and brutal winter experienced by most of the U.S.
Last week, stocks continued their rebound from the edge of the abyss. Investors responded positively to a dovish combination of comments from Speaker of the House John Boehner and new Federal Reserve Chairwoman Janet Yellen. Mr. Boehner said he would not pursue another acrimonious battle over the debt ceiling. And Ms.
Stocks provided a volatile and sweat-inducing ride last week in what many investors and traders thought might be the big selloff that so many have been predicting. Although the market tends to follow a path that fools the greatest number of people, sometimes it behaves in a self-fulfilling prophesy.
The sudden bearish turn last week in the market -- after hitting new highs the prior week -- has come fast and furious as selloffs are wont to do. And the pullback might have further still to go. But there are several reasons to expect a stabilization or bounce during this holiday-shortened week, and in any case I still expect that it eventually will turn out to be a great buying opportunity leading to higher prices later in the year.