The S&P 500 fell 1.55% last week. The week began stable. It turned volatile Wednesday and had its worst day of the year Friday.
The market was hit Friday with selling that was catalyzed by a potential war in the Middle East. The news was biased negative with China cutting off some Semi sales in the future and disappointing guidance from a few major banks.
The S&P, NASDAQ and QQQ closed one the 50 day MA. The DJIA and IWM have clearly broken below the 50 day MA.
This situation has brought in algorithm fund selling, like the CTA group. The CTA algorithm selling could be $48 billion in the S&P over weeks on a clear breakdown. There are a lot of other systematic investment funds.
The market looked vulnerable to a breakdown and had a threat of a war beginning over the weekend. This accentuated the selling and held back buyers.
The prospects seemed scary, the possibility of a spreading war in the Middle East. Instead we got a missile dud with hundreds shot out of the sky before they landed on the long range trip. It leaves the Middle East situation in limbo with uncertainty. Israel has promised retaliation.
However, the avoidance of a wide spread war sets up a relief rally from an oversold positioning. It is going to take time to sees how this plays out. It is hard handicap right now.
The biggest risk seemed to be an Iran attack. Now we have to guess on the retaliation process and how bad it gets.
The market got battered around as inflation has come in higher than expected for three months. The Fed and many futures investors have settled back thinking to few rate cuts this year.
We are back to the data as it flows to calibrate the rate of inflation, the Fed action, the long term interest rates and most important the earnings outcome.
The Technical picture has become more cloudy after months of momentum and rising sentiment. The market has been risky for weeks , but has had the momentum to keep on chugging up. The recent squalls have created a greater chance of a pullback.
The earnings reports will start the heavy flow next week and broaden out beyond banks as the week goes along. Last week was not particularly strong on earnings reactions, but it was a small sample.
The markets got more confusing last week. We will have to see if that underlying buy the dip mentality returns or the overdue pullback takes hold. The Middle East has to be watched.closely. That can go either way, better or worse????
Monday we get Retail Sales for March which should be helped by Easter in March compared to April last year.
Blub, blub
Jerry `