Marketview: Supply and Apathy

Another choppy negative week with the $SPX down around one-and-a-half percent.  Economic announcements continue to provide no big surprises, coming in generally higher or at least in-line with expectations.  GDP came in at 2% for Q3, new home sales were strong and continue to show the housing recovery is real.  The FOMC left rates unchanged, as expected.

So why is the market selling off?  There are only two things that cause price to move lower: an absence or buyers, or an increase in sellers relative to buyers.  I hate to break it down to such an elemental level but this is what we’re dealing with.  Our indicators told us to be cautious a couple weeks ago and I see no reason change just yet.  I see support at 1400, 1390, and 1360.  With the market settling into the 1400 level rather than finding reflexive buying, it appears that it wants to auction lower before it resumes any sustained rally.  When a support level becomes a price magnet, it’s usually not a positive sign.

As a side note: These pullbacks feel a little Groundhog Day-esque at this point.  First, buyers become apathetic to equities in the face of government intervention.  Then the market looks like it might just rollover — for real this time.  Ultimately, support is found and stocks run with everyone collectively chasing and covering higher.  Most frustrating bull market ever.

Healthcare, consumer staples and industrials suffered the least damage this week.  Basic materials, energy, and financials were sold much harder.  We have not yet seen the big risk-off trade which has been a hallmark of the recent pullbacks.  Watch for utilities, healthcare, and consumer staples to perform well during emotional selling as a sign that meaningful support is near.

Next week we’ve got nonfarm payrolls and end-of-month seasonality.  Markets tend to trend into nonfarm payroll Friday and there is a positive skew to the end of the month.  We should get a directional cue by Tuesday on which direction the market will favor.  Choppy conditions will continue and volatility should increase.  Be ready for it.

Winners: $MSFT, $ORCL, $QCOM, $TGT, $COST, $CMCSA

Losers: $HAL, $DD, $NOV, $NSC, $AAPL


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