U.S. equity markets posted incremental loses on the day yesterday and as expected, volume expanded modestly. The NYSE saw volume rise by 2.18% while the NASDAQ’s volume expanded by 6.4%. Internals on the NYSE had winners beating losers marginally. While the reverse was true on the NASDAQ. The S&P 500 lost 0.13% while the Dow Industrials closed nearly unchanged – 0.05%. The NASDAQ was the loss leader on the day giving back 0.50%. That out performance to the downside was fueled by both earnings and by specific sector weakness in the biotech and pharmaceutical space.
Sector performance on the day was evenly divided between winners and losers. To the upside, industrials (+1.45%), Materials (+0.61%) and Financials (+0.38%) were standouts. On the downside technology (-1.73%), health care (-0.73% and consumer discretion (0.48%) led the way lower. Other than the fact that markets lost fractional ground, it was a very mixed performance.
Earnings are in the driver’s seat at this point in the calendar and as such, the range bound trade we have been treated to in recent sessions is a result of uninspiring and decidedly mixed quarterly results – particularly by the names that have managed to grab the headlines. Weak results posted by IBM, Morgan Stanley (MS), Yahoo (YHOO) after the closing bell yesterday, have been offset by Verizon (VZ), Wells Fargo (WFC) and General electric (GE). In short, earnings have thus far kept markets in neutral, as evidence by recent price action.
Taking first 6 trading days out of the performance calculation for Q4 thus far for the S&P 500, markets have not managed much of a move past the oversold condition that triggered the rally in the first week of the month. On October 8th the S&P 500 closed at 2013.43. Yesterday it closed at 2031.04. The total move from the close on October 8th to yesterday, October 20th was .87%. The good news is that all three major US equity indices are above their respective 50 DMA. The bad news is that all three have appeared to have stalled.
From a technical perspective it appears as though the NASDAQ has run into some resistance at its 200 DMA. As I have suggested in recent posts, the 200 DMA would likely be the make or break point for a sustainable move higher. The S&P 500’s close at 2031.04 yesterday leaves it well below its 200 DMA. The same is the case for the Dow Industrials which closed at 17,221.25.
If the earnings results we have gotten thus far are any indication of what we should expect moving forward this earnings season, don’t look for much in the way of investor excitement for equities in the near term. But then again, investors may not be looking for excitement given the volatility that we have all been treated to in the not so distant past. I do however expect a selloff this quarter as you well know. It may well be brief and it may well be shallow by August 24th’s standards, but our recent price action only confirms that a reset is more likely than ever – from where I sit.