August 18th, 2009
What you see above is today’s minute-by-minute values of the S&P 500 Index. There’s no error; all of the decline today took place within the first 15 minutes of trading. The gap down represented less of a change in trend or momentum than an instantaneous revaluation of US stocks based on what happened in overseas markets, especially China, overnight and in the early morning.
Athough we tend to think the Index reflects the health of the market (I have often said the the market represents an average 50% of a stock’s price movement), today’s abrupt repricing of US equities in response to the action of world markets as reflected by the Index may not be telling the whole story. For example, here are the same minute-by-minute charts for some of the favorite momentum stocks in yesterday’s spreadsheet list:
- VRX (Valeant Pharmaceuticals)
- CRI (Carter’s Inc)
- SXCI (SXC Health)
- NVEC (NVE Corp)
- CKSW (Clicksoftware)
- CREE (Cree Inc)
- KIRK (Kirkland’s)
- LFT (Longtop Financial Technologies)
- VNDA (Vanda Pharmaceitucals)
There was a dash for the exits in the first 15-30 minutes (fueled, I suspect, by the desparate and unconscionable alarmists at CNBC) but then sanity returned and many stocks recovered nicely. Was there a tectonic shift under the footings of the recovery? I don’t believe so … not yet. A couple of weeks ago (see “Difference Between Correction/Consolidation and Reversal” of August 7), I wrote:
“Today, the Index bounced up against what could potentially be the top of what we might later understand to be the traders’ remorse correction or consolidation. The market might straddle the 300-day MA like it straddled the 200-day. It could end back at 950 just about the time that a traffic jam is created as the 4 moving averages converge with the neckline. That could be around Labor Day or mid-September and could be a glorious day because it would technically mark the true beginning of the Next Bull Market…..As the bears begin playing their dirges at the death of the bull market, look to see what sort of pattern the Index is making before selling all your stocks, buckling up and reaching for air masks. This plane isn’t going down yet; I hope it won’t land for quite a while.”
Anticipating this mornings dive doesn’t make it feel any less painful. Even though the market took a beating in early morning trading, I believe it’s still tracking along the 300-day moving average heading towards that 950 convergence around Labor Day. In addition, As uncomfortable as it feels, I’m sticking to that game plan unless and until I find that the 950 support level is broken.