1987 VS 2013: A QUICK LOOK
It is important to note that Jan-Aug 2013 looks eerily similar to Jan-Aug of 1987. We are not there yet but something we are watching closely. Here are a few facts for your review: In 1987, the S&P 500 soared over 30% from Jan-Aug. So far, in 2013, it vaulted 20% during that period. In 1987, the S&P 500 topped out at the end of August then broke below its 50 DMA line in September. Then support was broken on Oct 14, 1987 when it took out its recent lows – just above 308 (& no that is not a typo!). Then it broke and closed below its 200 DMA line on October 15th. The following Monday was “Black Monday” where the S&P 500 lost an incredible -15% in one day! We are not sure how the rest of 2013 plays out but we will be on the look out for further weakness.
MONDAY-WEDNESDAY’S ACTION: STOCKS FALL ON TAPER TALK
On Monday, the DJIA & SPX logged their first 4-day losing streak of 2013 as the benchmark S&P 500 index slid and closed below its 50 DMA line. The one caveat is that, on average, the recent decline in the market has occurred on relatively light volume. Volume is a critical indicator of institutional demand therefore a low volume decline suggests large institutions are not aggressively selling stocks. Moreover, a high volume move (up or down) suggests large institutions are more actively involved.
THURSDAY & FRIDAY’S ACTION: Rates Fall; Stocks Edge Higher
MARKET OUTLOOK: BEARS ARE GETTING STRONGER
The market still has some issues but under the surface a few areas look healthy and the market looks like it wants to bounce into month-end. Defensive is paramount until the major averages definitively regain their 50 dma lines. Our goal is to remain in sync with the broader trend of the market (up or down) and not get caught up with the minutiae of changing labels on the market status very often. As always, keep your losses small and never argue with the tape.