It’s do-or-die time for the bulls now, as equities have fallen to key technical support levels that have sustained the post-2012 uptrend.
On Thursday, stocks fell for the fourth consecutive session with the Dow Jones Industrial Average down 0.2%, the S&P 500 down 0.2%, the Nasdaq Composite lost 0.3%, and the Russell 2000 lost 0.1%.
Materials (XLB) led the way with a 0.2% gain while utilities (XLU) fell 0.8% on weakness in Treasury bonds, which increased yields.
The session was choppy but quiet, as if all the pep and vitality was taken out by last week’s post-Fed surge. Maybe the bulls are still trying to rehydrate and reload.
Or maybe they’ve lost the initiative.
Much depends on stock turning higher from here as the S&P 500 moved down to touch its 125-day exponential moving average. This is a level that, aside from the October Ebola scare, has held the index since the Federal Reserve unleashed its QE3 bond buying program in late 2012.
Thanks to the support of the 125-day EMA, the index hasn’t suffered a 10%-plus “correction” since 2011.
From weak U.S. economic data, which has pushed the Citigroup Economic Surprise Index to four-year lows, focus turned to the escalating proxy war bring fought in Yemen between Saudi Arabia and Iran. There is chatter of a possible ground force incursion by Riyadh into the troubled country, where Shiite rebels aligned with Tehran have deposed the pro-West government.
This is helping lift crude oil (USO), which gained 4.3% to close at $51.33 as breaks above recent downtrend resistance.
The good news is that the sellers seem to be losing some intensity, with breadth posting some improvement today over Wednesday’s session: There were 644 declining issues on the New York Stock Exchange, an increase of 804 issues.
This sets the stage for an oversold bounce on Friday catalyzed by Fed chairwoman Janet Yellen’s comments on monetary policy tomorrow afternoon in San Francisco. Merely a hint at concern at the degradation in the economic outlook — or the dollar’s impact on corporate profits — will quickly turn things around and restore the excitement of last week’s revelation that the Fed sees fewer rate hikes in its forecast for this year.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. You can reach the author at anthony@edgeletter.com.
