Stock Market Moment of Truth

Stock Market Moment of TruthThere are so many statistics to describe the stock market price action the first two weeks of the year, it’s mind numbing.

I’ll try to cut through the superlatives (that would be OMGs for the millennials) and focus on a couple dynamics that jumped off the screen Friday afternoon showing the market to be very, very, very close to a tradable oversold rally, or possibly a total breakdown.

First, there are so many market averages and indicators at Major Inflection Points that that a sharp move in either direction has to be in the cards.  I know we’ve already had a sharp move down to start the year.

But now it’s Big Time Decision Time.

The S&P 500 at 1880  and NASDAQ at 4488 settled Friday just a hair above and  below their  August 25 closing lows of 1867.60 and 4506.50

For NASDAQ, it was the first close below 4500 since the sharp selloff in October 2014.  NASDAQ is down 10.4% to start the year, nearly double its gains for all of 2015. In the wrong direction of course.

Stock Market Moment of Truth

The DJIA, at 15,988 settled just below the 16,000 century mark after trading sides multiple times on Friday.  The dividend yield of many of the blue chips and a “not so red hot US $” has helped the DJIA out perform a bit, unlike the sharp sell offs in October 2014 and last August/September.

Don’t think these big round numbers are meaningless.

Stock Market Moment of Truth

The Russell 2000 at 1007, spent a good 3 hours of the day below the benchmark 1000 level before a bump off the lows in the last 90 minutes.  The Russell hasn’t closed below 1000 since June of 2013, but is down a stunning -23% since late June of last year. We notice that the Russell outperformed NASDAQ  by a full 1% on Friday and the S&P 500 by 0.5%.

Being easily the worst performing broad market average since the highs of last summer, there is a glimmer of hope that  the selling in the Russell may be close to exhausted.

Stock Market Moment of Truth

Oil has obviously been the Big Kahuna in the market for months, with attention intensifying since it broke $40 in Q4 last year.  Friday Oil did the unthinkable and broke the $30 level on a closing basis for the first time in 12 years.

I believe that since Friday Brent Crude has traded as low as $28 with the latest catalyst being the lifting of the sanctions against Iran.  After using $30 as support for the last 2 weeks, if $30 now becomes resistance for Brent Crude, and possibly WTI, economists will be very challenged to tell us the potential damage to  the Global Economy in a world of sub $30 oil.

Stock Market Moment of Truth

I can’t remember the last time so many market averages and indicators were at Critical Inflection Points:   DJIA, 16,000;  S&P 500, 1867 (August low);  NASDAQ, 4500 (August low);  Russell 2000, 1000 price level;  Oil at $30 (sliding to $28 going into Tuesday morning).

Synopsis: Stock Market Moment of Truth

52 Week High/Low indicator

The Second Dynamic pointing toward a potential halt in the sharp decline of the last two weeks is the Extreme Level of new 52 week lows registered the last 3 days.   Wed thru Fri last week we had 2 days with over 700 new 52 week lows followed by 938 new lows on Friday.

I’m a big believer in this indicator because it has a great track record of marking reaction lows and points of selling exhaustion that have been followed by sharp rallies.

At the lows in October 2014, after a month of hard selling we had 2 days in a row with over 600 new 52 week lows.   That was followed by a strong rally that took major market averages to new highs by the end of November.

At the nadir of the selling August 24 and 25 we had over 1200 new 52 week lows on August 24.  During the late September retest of the August lows new 52 week lows never got above 500, a sign that selling pressure had been exhausted back in August.    A +1000 reading is highly unusual and we almost had one Friday.

Clearly, we’re starting the day about 1% higher on the broad market averages.   Watch the market internals carefully as the day progresses. Last Thursday was the day that market averages rallied ~+1.5%.  The Adv/Decal stats that day were only positive by slightly better than 2 to 1.

This was sandwiched between 2 days of greater than 2% declines where the Adv/Decal stats were  negative 6 to 1 on Wednesday and negative 4 to 1 on Friday.    

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