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Market Weakness? This S&P 500 Slide Won’t Last for Long!

The market isn't pointed in the right direction, but this downside move lacks volume and conviction


On Thursday, April 13, stock indices fell for the third consecutive day as fear of a slowing economy and international political tensions led to investors’ reassessment of their holdings.

The Dow Jones Industrial Average fell 0.7%, the S&P 500 lost 1.1%, the Nasdaq dropped -0.5% and the Russell 2000 fell 1.3%. The major indices fell despite earnings gains by JPMorgan Chase & Co. (NYSE:JPM), Citigroup Inc (NYSE:C) and Wells Fargo & Co (NYSE:WFC). All three mega-banks beat earnings estimates, but WFC missed its revenue target. The financial sector lost 1.3%.

On Good Friday, a stock market holiday, the consumer-price index (CPI) declined for the first monthly decline since January 2010. That announcement followed one week after a Labor Department report that showed that U.S. employers added fewer jobs in March than economists had forecast.

Thursday’s decline took the S&P 500 down almost 3% from its March high. It was led lower by the energy sector of the 500, down -1.6%, despite the positive close of WTI crude oil ending the week higher by 1.8% at $53.18 per barrel.

At the close, the Dow Jones Industrial Average fell 139 points to 20,453, the S&P 500 lost 16 to 2,328, the Nasdaq fell 31 points to close at 5,805 and the Russell 2000 dropped 14 at 1,345. The NYSE’s primary exchange traded 765 million shares with total volume of 3.1 billion shares. Nasdaq crossed 1.6 billion shares. On the Big Board, decliners outpaced advancers by 2.5-to-1; on the Nasdaq, decliners led by 2.2-to-1. Blocks on the NYSE increased to 6,417 from 5,999 on Wednesday.

Monday’s Analysis

VIX chart
Click to Enlarge

Russell 2000

Although the CBOE Volatility Index (the VIX, or the “fear index) has hit a five-month high with four closes over its 200-day moving average, sentiment appears to be driven by geopolitical happenings that have an impact on gold, the dollar, etc.

Dow Jones Industrial Average chart
Click to Enlarge

Even though Thursday’s close was close to the low of the day, volume was very low and has been low for the past six days. However, a close below the March low at 20,412 could cause more selling and could sustain a break to the next level of support at the January high at 20,125.

Conclusion: The “breakdown” through the 50-day moving average of the major indices lacks breadth, and low volume indicates a lack of fear generally associated with the beginning of a correction. The average investor is usually wrong, especially in the near- and intermediate-term. Significantly, the most recent AAII Sentiment Survey shows only 29.0 bullish (average is 38.5%), 33.6% neutral (average is 31.0%), 37.4% bearish (average is 30.5%).

Outside events often influence trends that are not predictable. But in the absence of an unusual happening, I conclude that the current breakdown will not last long and weakness should be treated as an opportunity to buy stocks of high quality at prices our readers have estimated as “reasonable.”

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.

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