4 Stocks That May Have Signaled The Worst Is Over For The Stock Market
It was another brutal week in the stock market, with the S&P 500 falling by over 5 percent, but it was even worse because at the lows on February 9 it was down over 8 percent, just for the week. What if I told you that through all of this mayhem, that the S&P 500 was only down about 2 percent for the year, you probably say what is the big deal especially given last year’s gains.
A Crazy Year
It shows you just how overextended the market had gotten when it peaked on January 26 near 2,880. It was on January 29 that I wrote that market the was extremely overbought, and that I was not worried about the VIX sitting at 15, but I was watching it. In fact, the four most significant stocks, Apple, Alphabet, Amazon, and Microsoft were all flashing strong sell signals, not only that the relative strength index on the S&P 500 was at astronomical levels. It was on January 31 that I again noted the market was still extremely overbought and was looking for a 3-5 pullback from that point. To this point since January 31, the S&P 500 has fallen by just over 7 percent, more than I had anticipated, but knowing how far the market was overextended, the declines are not surprising.
Also, I should clarify when I wrote on February 2, and the sell-off made no sense. What made no sense was that it was being attributed to yields rising, or inflation. That argument still makes no sense and seems to the lazy way to explain the sell-off.
Four Big Stocks
If we look at those four stocks, Apple, Amazon, Microsoft, and Alphabet they all seem to be showing encouraging signs that perhaps a bottom in the market has come. In fact, from their highs, each stock is down by at least 7 percent, while Apple has performed the worse down by nearly 13 percent.
S&P 500 CASH
The S&P 500 RSI has fallen from overbought to oversold level in just a weeks time, while Volume has surged, in what could be a capitulation type moment. The 5-minute chart suggests that there are still some resistance hurdles left to climb at 2,633, which had been a support level, and we did fail at late Friday, but the steep sell-off worst part may now be over.
S&P 500 Futures
Also as previously noted the S&P 500 futures tested the lows on late Friday, and held, which also happened to be the 200-day moving average.
Apple also fell into oversold territory with an RSI reading well below 30, while volume surged, and found a bounce off of support at $150, a support level that has been tested in the past.
Alphabet saw similar price action on Friday, with an RSI falling from overbought to oversold, while volume surged. Alphabet also found critical support at $1,000, which also happened to be the 200-day moving average.
Microsoft was no different, with shares of the stock hitting oversold levels, on surging volume, and running into essential support around $85.
Amazon has seen its RSI retreat from overbought levels, although it has not reached oversold levels, nor has it hit a meaningful support level. But Amazon was also late to the party when it came to declining, and therefore it may not have bottomed just yet, but it appears to be getting there.
If I told you on December 31, that Netflix would be up nearly 30 percent for the first five weeks of the year, you would have been thrilled. That is precisely how much it is up this year, and what is impressive is that is also nearly 12 percent off its highs. That is how crazy this year has been for this stock.
Netflix should put into perspective how crazy this market was at the end of January.
The good news is that the VIX index is heading lower as well, as the RSI is now declining, while the deep sell-off on Thursday and through most of the day Friday did not send it to new highs.
As for those treasury yields, they didn’t budge this week. In fact, They finished the week where they ended last week on the long-end, with the 10-year sitting around 2.85 percent.
Meanwhile, the spread between US and German bonds have also remained in check.
While Oil prices, Gold prices, and copper prices all backed off this week.
Credit conditions remain calm between the banks, with overnight libor seeing no significant changes.
Life As We Know It
So for now, it would seem the world isn’t coming to end.
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Michael Kramer and clients of Mott Capital own shares of GOOGL and NFLX
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