I meant to post this the weekend of the 7th of March. Hesitated; perhaps because it may have seemed something of a “told you so!” follow on to a post about markets at record highs recently. Or because there didn’t seem to be strong volume confirmation of the start of a correction. Better late than never.
Two trading days into this week, the DJI and SP500 indices have come down to a flat level for the year. Just below the first gray ‘0.0%’ line in the chart above, below an SP500 support level around 2063. I’d meant to say that if this level is convincingly breached, and the SP500 stays below it for another session or two, we could see an accelerating sell-off to the next support level at ~2000 for that index.
Things do not look good; selling appears to be gaining strength today, the 10th, which (give or take a day or two) is also the 6th anniversary of the legendary Haines Bottom: a simple call by the late Mark Haines of CNBC of a market bottom in early March 2009.
Mark was a favorite business show host of mine – and of very many others, I am sure – who did not bother much with technical numbers, levels, and related mumbo jumbo. He reflected, quite simply, that the index, around 676 then, was very substantially below its 200-day moving average…and looked way oversold. His pithy insight proved prophetic; that was the bottom of the markets, and we’ve had a six year long bull market since then. Such long bull markets are unusual. Mark Haines would say it has stretched on way too long.
What worries me, despite market movement in the direction expected, is that the reasons cited are rather vague and have been around for a bit now. A strong dollar, and concerns about Greece again. These are not triggers, they are continuing headwinds; Greece seems more of a slow-motion train crash in advanced market terminology. Analysts now say that domestic earnings estimates for both Q1 and Q2 of this year show negative growth predicted. Not by large percentages: in the low single digits, but negative nevertheless. And, given a surprising ‘jobs created’ number last week, the probability of a FED interest rate hike in June or September is much higher. Negative sentiment, building up for some time now, is developing into more confident estimates.
Recent historical evidence may suggest buying the dips; a ~5% pullback, it is said, may be followed by a strong reversal. I’d be more cautious this time. A drop down to ~1875 on the SP500 is perhaps not entirely out of the realm of possibilities…
I remain long VIX.