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Wall Street Slapped With a Cold Dose of Reality

North Korea adds to selling pressure. The thing to monitor closely now is the degeneration of market breadth.

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The market is sobering up in a hurry.

U.S. equities suffered their steepest pullback in months on Thursday, pushing the Dow Jones Industrial Average back below the 22,000 level in dramatic fashion, as the war-of-words between President Donald Trump and North Korea continued to escalate.

The result was the first three-day loss in stocks since March amid a big breakout by the CBOE Volatility Index (INDEXCBOE:VIX), which pushed to its highest level since April. That boosted the Short-Term VIX (NYSEARCA:VXX) recommended to Edge subscribers to a gain of nearly 14%.


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In the end, the Dow lost 0.9%, the S&P 500 lost 1.5%, the Nasdaq Composite gave back 2.1% and the Russell 2000 finished 1.8% lower. Elsewhere, Treasury bonds strengthened, the dollar weakened, gold gained 0.8% on a safe-haven bid and oil gave back 1.9% amid a focus on higher OPEC production as the supply cap agreement starts breaking down.

Breadth was heavily negative, with decliners outpacing advancers 6.6-to-1, and NYSE volume at 106% of the 30-day average.

Utilities led the way on the yield compression, rising 0.3%. Technology and financials — areas of recent momentum upside — were the laggards, down 2.2% and 1.8%, respectively.

Retail earnings were in focus. And they weren’t good. A few lowlights:

Also, Snap Inc (NYSE:SNAP) dropped 12% after hours after reporting a loss of 16 cents per share — two cents worse than expected — on a big increase in its cash burn rate.

Conclusion


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The superlatives are easy to find. Stocks suffered their worst day in three months. VIX enjoyed its biggest spike since August 2015 China devaluation. High-yield bonds endured their worst day in five months.

Finally, it looks like the stock market’s disconnect with reality is about to end.

In a note to clients earlier today, Goldman Sachs technical analysts warned that market signals suggest a “period of corrective price action has begun,” setting the stage for further price pressure.

What do investors need to watch now?

Market breadth continues to deteriorate rapidly. The percentage of S&P 500 stocks in uptrends is at risk of falling below its May low. A breakdown below that level would put the entire post-election rally in jeopardy — at least from the standpoint of upside participation.

Check out Serge Berger’s Trade of the Day for Aug. 11.

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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Anthony Mirhaydari is founder of the Edge (ETFs) and Edge Pro (Options) investment advisory newsletters. Free two- and four-week trial offers have been extended to InvestorPlace readers.


Article printed from InvestorPlace Media, https://investorplace.com/2017/08/north-korea-tensions-push-stocks-to-worst-day-in-months/.

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