Monday brought a thrashing in the US Stock Market, but the selling was not contained there. Gold took a hit, oil prices rose very slightly, and bond prices rose on the day, reflecting a possible ‘flight to quality.’ Let’s take a look at some of the sector action on Monday to see if we can figure out what happened and why.
Below is the Sector performance as reported by StockCharts.com:
Today was the same ole’ story, in terms of the Financial Sector (XLF, down 3.5%) and Consumer Discretionary (XLY, including retail, which declined almost 3% today) leading the charge to the downside as investors pulled money out of these shaky sectors, which had been mounting a respectable recovery since the July bottom.
Some financial stocks (small banks particularly) had rebounded as much as 100% (doubling in price) in roughly a month, yet others have rebounded sharply and now retraced a large percentage of those gains.
This action represents a good lesson in what lead yesterday can lag today, or what looked strong yesterday can return to underperform today. Also, it can be a lesson in the relative danger in ‘bottom fishing’ or ‘knife catching’ possibly.
Nevertheless, the broader indexes still remain divided, in terms of the S&P 500 and Dow Jones having broken down beneath a rising wedge (or rising trend channel), while the Russell 2000 and NASDAQ continue to show strong possible support beneath price. One of these scenarios is false and will break, and the pressure now is on the NASDAQ and Russell Indexes, as support (via daily and weekly moving averages) is directly being tested.
Still, even traditionally defensive sectors and stocks were taken down today (such as Health Care and Consumer Staples - both down 1.6% today). These are traditionally the havens money managers gravitate towards when they want to remain defensive (but must be fully long/invested).
Let’s continue to keep a close watch on the market, in terms of possible renewed strength, or continuing weakness, as this week could indeed be a transformative one.
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