May 21, 2008 Stock Market Recap

Unfortunately I had to be away from my desk today so I missed the big selloff. So once I got back home I was curious to see what caused the selling. THis morning I cautioned daytraders about the 2:00 Fed minutes release. From what I see on the intraday charts the minutes added a lot of fuel (crude oil?) to the fire but the selling appeared to start at 1:00 when (surprise!) a Fed official (Warsh) started talking about the vexing problem of inflation. Of course we can never be sure of all the causes of selling. As you know I’ve been harping on the 200-day moving averages as a trigger for bears to step up as well as the possibility of seasonality (sell in May…). Barry Ritholz had a post tonight about how one could take their pick among things to blame for the selling today:

Choose your poison: Technical, Fundamental, Macro-Economic — there’s something for everyone in the recent market action:

Macro-Economic: FOMC minutes reveal the Fed is expecting weaker growth, worse employment, with inflation threatening to become more problematic the same day CrudeOil hits $134.

Fundamental: Funny thing about that Oil: Without it, SPX earnings would be the worst in decades.

Technical: Markets have made up about half of their peak to trough losses, from the October highs to the January/March lows. No coincidence either that the 200 Day moving averages were major resistance.

Whatever the reason(s) was(were), there was a good deal of technical damage done today. I was asked the following about the transports today:

Mike, any thoughts on Transports/IYT getting stuffed Monday at a new all time high (intraday)? Do you look at the Trans in your preparation? I’m curious because it’s been a leader in this recent rally.

I don’t often look at the transportation index and I think it’s too early to draw any conclusions about what happened today. Logic would suggest that the rise in oil today had something to to do with the drop in transports but that wouldn’t explain why they’ve been rising right along with oil for months now. It appears that AMR specifically and airlines in general (LUV, CAL and JBLU) were responsible for the volume surge today. But their price weightings only account for less than 4% of the index. I’m not sure what to make of this drop. The March trendline break is a little troubling, as is the potential double top. But despite those things this sector still looks better than most of the market.

I’ve been a broken record about either the 200-day moving average or the March uptrend breaking soon on the S&P. It looks like we got the decisive move today from the trendline break on increasing volume.

Here are the rest of the indices:

Trend Table

Lots of changes today…

Trend Nasdaq S&P 500 Russell 2000
Long-Term Down(-) Down(-) Down
Intermediate Up Up Up
Short-term Down(-) Down(-) Down(-)

(+) Indicates an upward reclassification today
(-) Indicates a downward reclassification today
Lat Indicates a Lateral trend

*** I’m simply using the indices’ relations to their 200, 50 and 10-day moving averages to tell me the long, intermediate and short-term trends, respectively.

Comments

  1. Posted by FlyingWabbit on May 21, 2008 at 11:56 pm

    Hi, Mike:

    Excellent analysis as usual, I particularly appreciate your comments on airline names.
    Personally, I feel their precipitous drop here might represent a good long swing play opportunity in the coming weeks as oil/energy might have their mini-crash… check out my blog if you get chance..

    best,

    fw