Market Wrap – week ending 4/11/2014

Another nasty week in the market with unfortunately no end in sight.  Yesterday and today the three indexes that were holding up the strongest (Dow Jones 30, S&P500, and the NYSE) all broke down and made new lows.  In fact, what a difference only one week made … last Friday the S&P 500 made an all-time high intraday, then collapsed 4.3% over the past 5 trading days. 

Whereas the above indexes didn’t look as weak until this week, the Nasdaq has been struggling for awhile now.  Yesterday it fell over 3% making it the worst 1-day price drop in 2 years.  The Nasdaq topped roughly a month ago and has dropped 8.5% since then, the same with the small cap Russell 2000.  Leading stocks and the smaller riskier stocks have shown stress for most of March, which is normal in a market topping pattern, where the larger institutional investors move their money from riskier positions into larger, ‘safer’ positions.  So, for now we have a very ‘normal’ topping pattern playing out.

Most corrections are contained within an 8% drop from the previous high, and then the market stabilizes and moves higher, and yet the Nasdaq has fallen over that level in the past month … which can imply that we have more downside to go.  Intermediate term corrections are usually contained between 8% and 12%, so we either need to immediately move higher starting Monday OR one can expect us to drop another 4% before testing support.  I expected a bounce around the Nasdaq 4000.00 level and we closed right at that level today, so we likely see a bounce from here early next week.  We certainly are overdue for a bump up, but how strong that bounce will be, will tell us a lot about the next few months in the market.

Right now, the only place to be … is on the sidelines, NOT invested in the market, taking a protective stance, which is where we will remain in the short-term.  As you already know, all of our strategies moved fully to cash a few weeks ago, so we have nothing to worry about if the market continues down.  We will continue to monitor the situation very closely and if things improve will quickly be back in the market, but for now we remain in the safety of cash.

Hope you have a wonderful and safe weekend.

Respectfully,

Randall Mauro

Resnn Investments, LLC