On Friday, the Dow Jones Industrial Average dropped sharply, but it was the Nasdaq and the small-cap stocks that led the sell-off. The industrials were off 1% and the S&P 500 fell 1.3%, while the Nasdaq lost 2.6% and the Russell 2000 was down 2.3%.
Some big technology stocks took a beating: Amazon.com (AMZN) fell 3.2%, Netflix (NFLX) fell 4.9%, Microsoft (MSFT) lost 2.8%, Facebook (FB) declined 4.6%, and Tesla Motors (TSLA) dropped 5.9%. Some smaller names were hit even harder, with Firefly (FEYE), Splunk (SPLK) and Yelp (YELP) down 8.2%, 5.6% and 6.9%, respectively.
Additionally, biotech stocks were weak, with the iShares Nasdaq Biotechnology (IBB) losing 4%.
The focus of the day was on the jobs report. The economy added 192,000 jobs in March, slightly lower than the prediction of 200,000, but both January and February reports were revised higher.
Bond prices rose with the benchmark 10-year note up 17/32. Its yield fell to 2.726%. And gold futures were up 1.5% to settle at $1,303.20 per ounce.
At Friday’s close, the Dow Jones Industrial Average was off 160 points at 16,413, the S&P 500 fell 24 points to 1,865, and the Nasdaq was pummeled with a 110-point loss, closing at 4,128. The NYSE primary market traded 781 million shares with total volume of 3.6 billion shares. The Nasdaq crossed 2.6 billion shares. On the Big Board, decliners outpaced advancers by 1.9-to-1, and on the Nasdaq, the ratio was in favor of decliners by 4.9-to-1.
Friday’s breakdown through the Nasdaq’s 50-day moving average and intermediate trendline was an unexpected negative. It was accompanied by a MACD indicator that is oversold but looks to be headed lower. This seems contrary to all that we’ve said about April typically being one of the best months of the year.
Despite the claim that April is a good time to own stocks, we see a similar pattern in April 2013, when there was a clear break through both the 20-day and 50-day moving averages and a break of the intermediate trendline. MACD was also in an oversold condition.
Last year’s mid-April shakeout of the techs had no influence on the Nasdaq’s long-term advance. In fact, since the April 2013 low, the index has gained roughly 30%.
Conclusion: Adjustments in the prices of high-P/E stocks are normal — even in one of the best months of the year. Despite the temporary heartburn, once the adjustment has been completed, the bull market resumes its advance.
Last year’s round of profit-taking in April is very similar to this year’s adjustment. Despite the break of the intermediate trendline and the 20-day and 50-day moving averages, the bull trend resumed and April 2013 ended with a gain of 1.8%. That shakeout ended on April 18 with a high-volume selling climax, which was very similar to Friday’s sell-off.
It may be just a temporary disappointment that the Dow industrials failed to confirm the new high of the Dow transports. However, the market seldom does what we would like it to do when we would like it to do it. This is why I often caution readers to never buy in anticipation of a positive chart signal. Patience provides rewards.
Friday’s emotional run to the exits caused no real damage to the technical picture of the market, and in fact, has provided us with the opportunity to buy some highly volatile stocks at 10% to 30% below their recent highs. Grab for high-tech bargains. This early April sell-off is a gift to the bulls.
Today’s Trading Landscape
To see a list of the companies reporting earnings today, click here.
For a list of this week’s economic reports due out, click here.