Global markets got off to a rocky start overnight with the Nikkei losing 5.4% as the ¥ continues to appreciate against other major currencies. The good news might be that all markets in China are closed for the week with other markets in Asia reopening tomorrow.
Monday recap: US Equity markets started the week where they left off on Friday, with sharp losses across all market sectors and averages with few places for equity investors to hide.
At the lows of the day Major Market Averages were down by as much as -2½% to -3% before a relief rally in the last 90 minutes cut those losses in half. Let’s take a closer look:
The S&P 500 -1.4% at 1853.44 settled at its lowest close since April of 2014. It did manage a relief rally off the intraday lows from the last 16 months of 1812 to 1830, but clearly those levels will be severely tested again this morning following the market route in Japan and Europe to start the day.
NASDAQ -1.8% at 4283.75 Looks officially De-FANGED closing below the intraday lows from both January 20 and last August 24/25. The closing lows from mid October 2014 of 4215 and 4217 are now right in the crosshairs of the bears. The NASDAQ is now -14.5% YTD. That’s just the last 6 WEEKS!!!
— Timothy Anderson (@TJAnderson1) February 8, 2016
I can’t help but flashing back the countless thoughtful and persuasive articles last spring as the NASDAQ was encroaching on its all time highs from 15 years earlier. “It’s a very different NASDAQ this time”…..”Don’t Fear NASDAQ 5000” OK, I’ll stop now.
The Russell 2000 -1.6% at 969.34 What looked like potential base building from a very oversold state the last 2 weeks is now just a “bear flag” as the Russell closed at a new reaction low, and the lowest close since June 2013.
The Russell 2000 is -14.6% YTD, matching the NASDAQ, and is -27.5% from its all time high just 7½ months ago. If you’re not sure what a bear market looks like, take a look at the last 8 months of the Russell 2000 from a 2 to 3 year chart. That’s a bear market.
and now for something on the positive side……..
The DJTransport Average -0.3% at 6924.31. Has clearly been acting better than the broad market since potentially bottoming out on January 20. Not completely out of the woods, but close to 5% higher than the January 20 close of 6625 which came after a strong reversal day after a 6403 intra day morning low.
Keep in mind the Transports were the first major average to peak in late December 2014 at DJT 9217. The January 20 close of 6625 was a 28% decline from the closing high 13 months earlier.
Here’s the key thing to look for……If Oil breaks $30 hard and we get new lows in the S&P 500 and NASDAQ, can the DJ Transports hold the January 20 closing low of 6625? If it does, that positive divergence could be the first early sign that we’re starting to put in a bottom.
Right now, That’s a Big IF
There’s clearly a flight to quality and yield going on within the equity market. This was readily apparent even within the carnage of the oil sector. Oil has held the crucial $30 level for 2 to 3 weeks (remember the 8% rally last Wednesday?) and the day began with a fresh round of selling and another assault on the $30 support level.
Companies in the space with balance sheet issues continue to get severely punished, i.e.: CHK and WMB each -30% and many other secondary and tertiary names had losses of 5% to 10%
— Jim Cramer (@jimcramer) February 8, 2016
The opposite end of the spectrum is that clearly institutional funds dedicated to the sector were buying the big multinationals positioned to survive any shakeout, with dividends that are largely safe. XOM, CHV, COP, and EOG all had 1% to 2% gains when averages were at their absolute lows of the day.
By the close the buying in the oil sector had spread out among 15 to 20 of the higher quality names.
Oil held the $30 level overnight and after starting the day with modest gains of 1% to 2%, WTI is again hitting the $30 support level. Watch the correlation between Oil and Oil stocks closely today. If the quality names in the Oil Patch can outperform the commodity again today, and maybe throughout the week it could be an early sign of a change in sentiment toward the sector.
The Early Line:
Stock Traders Seeking Turnaround Tuesday
Equity futures are lower a few hours before the New York opening with S&Ps lower by 15 handles. Markets in the Eurozone have losses of 1½% to 2½% half way through the day after news that Industrial Production in Germany declined by -1.2% in December.
Stocks will likely trade on technicals awaiting the 2 day congressional testimony by FED Chair Yellen starting tomorrow. Watch the lows from yesterday on the S&P 500 of 1830 and below that the intraday lows from January 20 of 1812.