Ugly Action Continues On Wall Street:

The market sold off hard last week as sellers continued to pound stocks. As previously mentioned, the vehemence of the sell-off suggests more time is needed before the bulls regain control. The tech-heavy Nasdaq composite has fallen (on heavier volume) in each of the past 3 weeks. All of the major averages are now down on the year and the weakest areas remain- biotechs, momentum, and growth stocks.
In the short term, this suggests the market continues getting weaker, not stronger. On Friday 04/04/14, the S&P 500 hit an intra-day record high of 1897, three points shy of the psychologically important 1900 level, then reversed and negated its latest breakout of 1884. Since then, it negated all important areas of near-term support (1850, its 50 dma line, took out March’s lows and negatively reversed for April). The Nasdaq and Small-cap Russell 2000 indices are weaker, and are now down ~8% from their 2014 highs and trading near their respective 200 DMA lines. The Biotech ETF (IBB), broke its 200 DMA line on Friday, which bodes poorly for the major averages. We have a full section dedicated to reversals in our weekly report. Get it here

MON-WED: Brief Rally Fails

Stocks fell hard on Monday as sellers continued to dump growth and momentum stocks. Geopolitical woes resurfaced after tension spread in Eastern Ukraine, where pro-Russian protesters, demanded referendums on independence and took control of government buildings in four cities. Most notably, protesters in Donetsk called on Russian President Vladimir Putin to send in Russian peacekeepers. Fear spread that more areas of Ukraine will want to secede and join Russia like Crimea did in March. Stocks bounced on Tuesday as the bulls showed up and defended support for the S&P500 (recent lows and 50 dma). Utility stocks were the top-performing sector on Tuesday, which is typically a defensive area for the market. However, a ton of money has been moving into this space in recent months (as money moved out of growth) and the countercyclical group ended Tuesday with a 10.3% year-to-date gain, making it the strongest area in the market right now.
Stocks extended their gains on Wednesday after Alcoa (AA) officially kicked off earnings season. The aluminum giant gapped up on Wednesday after announcing Q1 results. The stock is no longer in the DJIA but is still closely watched as the official start to earnings season. The Fed released the minutes of its latest meeting which confirmed that they will continue to help the market, if economic conditions worsen.

THURS & FRI’S ACTION: Sellers Are In Control

The rally was short-lived as stocks plunged on Thursday and Friday. The benchmark S&P 500 closed below support (1850, recent lows, and its 50 DMA line) for the first time since February. Stocks tanked on Friday after JP Morgan (JPM) missed gapped down after reporting a lousy Q1. Wells Fargo (WFC) rallied after reporting numbers. The big banks tend to do rather well when stocks advance since a large portion of their bottom line is derived from trading and other related services. The S&P 500 soared 10% in Q1 2013 and was up nearly every week. This year, the first quarter was very choppy at best and the SPX only gained a fraction of 1%. Clearly, making it a “tough” quarter for large banks and other financial services firms (that are typically long-only).

MARKET OUTLOOK: STOCKS Tumble

The action of the past few weeks is not healthy and suggests lower prices will likely follow. Stepping back, the bull market is aging (turned 5 in March) and is likely to get a lot more tricky as we move forward. As always, keep your losses small and never argue with the tape.