Market Wrap – week ending 4/4/2014
This week was a bit nasty, we saw a traditional fake-out which caught many investors by surprise. In fact, even the daily investment newspaper Investors’ Business Daily, which is usually pretty good at getting a gauge of the market, on Tuesday changed their Market Outlook from ‘Uptrend Under Pressure’ to ‘Confirmed Uptrend’, only to reverse their decision today to ‘Market in Correction’.
It was a wild week for sure. From Monday to Wednesday the Nasdaq rose almost 3% (in three days), then yesterday and today it sold off hard … losing over 3.5% (in only two days). The small cap Russell 2000 did exactly the same thing, gaining 3.6% in the first three days and losing it all yesterday and today. Leading stocks and technology oriented stocks have been hammered over the past two days. This certainly is not what you want to see in a healthy market.
The NYSE, S&P500 and Dow Jones have been holding up better than the others, with all of them making a very small profit for the week, BUT these indexes have done quite poorly since the start of the year. This serves as continued confirmation from my previous comments over the past few weeks that a defensive rotation was occurring with large institutional investors clearly moving their funds away from riskier small caps into larger (safer) companies.
All indexes have been struggling since the start of the year, with the S&P 500 the only one that is eking out a small gain year to date.
Are we in for a larger decline? Larger market declines take time to start … usually a few months of iffy action before the market finally tops and breaks to the downside. We could be going through this ‘starting’ phase right now, but it is a bit too early to tell.
I certainly don’t like this bifurcated market, where the leaders are lagging and the defensively oriented sectors outperforming, but we are at a place on the charts where I expect value-oriented investors to jump in which should buoy the market in the short term.
We are sitting at the exact levels that previously acted as support, and although it might be obvious to most traders … I expect another bounce as a result. Over the past year, anytime the market got to this level … we usually were at the bottom and a new up-move began, but time will tell if the pattern from last year continues here.
One very unexpected situation in today’s market that is unlike the previous declines over the past year. The VIX has been quite tame over the past week, which is odd for sure. We do not use the VIX in our trading decisions, but I do monitor it for my own confirmation since it is so widely watched in the market. I have discussed the VIX in the past, it is considered a good way to measure the sentiment of the market players and a good gauge of fear in the market. With little movement during the current decline, it would imply that investors are NOT concerned, which indicates complacency. Is this good or bad, time will tell??
Resnn has been in cash most of the week. Our ‘One’ and ‘Medium’ term strategies began the week fully in cash, and stayed out of the market all week. Our longer term strategy finally had its’ sell signal on Monday, so we moved that strategy fully to cash on Monday afternoon as well. With all of three of our strategies exiting the market, it is no surprise that we had such a decline over the past two days. This confluence of signals is a bit alarming for sure.
For now, we sit on the sidelines in the safety of cash.
Hope you have a wonderful and safe weekend.
Respectfully,
Randall Mauro
Resnn Investments, LLC