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This Is Not Your 2013 Snapback Market Anymore


The technology stocks that have been recently leading are old tech such as International Business Machine (IBM), Microsoft (MSFT) and Hewlett-Packard Company (HPQ). That's akin to me asking my grandmother for Tinder advice. The Utilities Sector, (XLU) made an intra-week high not seen since June 2008. The Consumer Staples Index (XLP) have been underperforming the Consumer Discretionary Index (XLY) since early March. These are all exhibit signs of a risk-off market environment.

And finally, high beta discretionary, biotechs, and social media stocks are typically the first to get sold when market participants become concerned over a possible correction and for the last couple weeks they have been pummeled.

What All This Selling Means 

Without over complicating things, let's take a look at what is likely going on. We have had a five-year bull run that began in 2009. In the fifth year, last year, the market ended up over 30% on the year. Things got a tad bit stretched, shall we say. They went too far too fast and when that happens within a trend (currently a bullish one), a period of consolidation takes place resulting in some mean reversion. I wrote about that at the start of the year here.

Although the selling may appear excessive at times, when viewed from a broader perspective, it exhibits signs of a healthy market resetting itself. You can see this broader picture with the following monthly chart of the S&P 500.

So Now What? Again, to simplify, the path of least resistance right now is down. Don't over think it. Yes we will see bounces, especially when we get oversold, but until the path of least resistance turns back up, using 2013's playbook will likely be a losers bet. This is no longer your 2013 BTD (Buy The Dip) market. This is your 2014 'failed breakout' STR (Sell The Rip) market. Downside levels of support on S&P 500 for next week are 1850, 1838, and 1825. Resistance on the upside is 1875 and 1897.

We are not even close to being oversold on S&P 500 based on 20-day lows.

We are getting close, but still not yet considered to be oversold on Powershares.


At the time of publication the author had no position in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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