Last week, the S&P 500 (SPX) spent all five sessions trapped in a narrow range, says Jon Markman, growth stock specialist and editor of Strategic Advantage.
The 20-day moving average at 4,475 kept a lid on gains, and the 50-day moving average at 4,430 held up as support.
The benchmark index swooned hard, closing down 0.9% to 4,432. In the past every decline to rising moving average has resulted in ferocious buying followed quickly by new highs.
Those prior declines were one- or two-day events. Friday was the fourth day the S&P 500 tagged the key lower level, so we might be witnessing a mood change.
I have been bullish throughout this consolidation, but my patience will wear thin if stocks do not move substantially higher after bouncing at support. A close below 4,430 sets up a move back to the August lows at 4,365. Resistance is now 4,475.
The Nasdaq Composite sank 0.9% while the Dow fell 0.5% to 34.584. Techs, industrials and materials were the weakest sectors, while health insurers proved immune alongside retailers. Facebook (FB), Apple (AAPL), Alphabet (GOOG), and Microsoft (MSFT) all slipped about 2%.
Anomaly: The S&P 600 Smallcap index actually rose 0.1%, bucking the bad news. When liquidity is scarce, small caps are usually the first to get trashed. This suggests that the smackdown was more related to settling up futures and options on the third Friday of the month—i.e., “triple witching”—than a genuine abandonment of risk by bulls.
Breadth favored decliners by a surprisingly thin 4-3 margin and there were just 126 new one-year highs vs. 65 new lows. Big-caps setting new highs included Thermo Fisher (TMO), Blackstone (BX), Atlassian (TEAM), HCA Healthcare (HCA), KLA Corp. (KLAC), Cloudflare (NET), Asana (ASAN), and Upstart Holdings (UPST). A basket of dogs and cats.
The S&P 500 was down less than 0.6% for the week and remains down just 2.3% from the recent record. Yet we must note that it fell a millimeter below its 50-day moving average Friday for the first time in two months following the recent loss of momentum.
The 10-year US Treasury yield rose 4 basis points to 1.37%, a two-month high. West Texas Intermediate crude oil slipped $0.61 to $72 per barrel.
In data-land, the University of Michigan's consumer sentiment index ticked up to 71 in the preliminary reading for September from 70.3 in August, below expectations for an increase to 72. The index was at 81.2 in July before a 10-point drop caused by recent rise in COVID-19 cases. This is definitely beginning to look like a problem.
The current conditions index component declined to 77.1 in September from 78.5 in August, while the expectations reading rose to 67.1 from 65.1. "The steep August falloff in consumer sentiment ended in early September, but the small gain still meant that consumers expected the least favorable economic prospects in more than a decade," Michigan said. Uh-oh.
Moderna (MRNA) shares fell 4% even before an FDA advisory panel voted not to recommend Covid-19 vaccine booster shots for the US general population for now.
US Steel (X) shares sagged 8% after saying it expects to post a record third-quarter profit of $2 billion before items amid strong demand and rising prices, and to invest $3 billion in a new mill.
Thermo Fisher Scientific (TMO) gained more than 6% after providing 2022 revenue and earnings forecasts above estimates.
