The S&P 500 (SPX) opened weaker on Tuesday and it was all downhill from there, states Jon Markman, tech sector expert, and editor of Strategic Advantage.

In the end, the benchmark finished at 4,577, a decline of 1.8%. The close was below the January low at 4,580 yet marginally higher than the December nadir at 4,550. In the near-term, bulls absolutely must defend this level on a closing basis. Failure means a watershed decline to the 200-day moving average at 4,425. I do expect that bulls will regroup. Most sectors are now deeply oversold. However, markets that trend lower can quickly get out of hand. Traders panic easily. It’s important that stocks rebound sharply on Wednesday and not lose more ground the rest of this week.

I said a couple of weeks below that a WOB moment—that’s “watch out below”—may be on the horizon. Now the horizon is in sight. The worst declines come when markets are already weak, like putting stones at the bottom of a wet paper bag. Resistance for the benchmark is 4,680, a level that bears have already shown they can defend. The first three weeks of January are typically soft from a seasonality point of view, and then firm up. If seasonality holds at this time, the selling pressure should relent by Friday or Monday. There's no guarantee, but the market has followed its seasonal cues quite well in the past year.

Details

Stocks started the holiday-shortened week lower, with the 10-year US Treasury yield jumping to its highest intraday level in two years as earnings miss by Goldman Sachs (GS) earnings miss weighed on the financial sector. The Nasdaq slumped 2.6% to 14,506.90 and the Dow sank 1.5% to 35,368.47. All sectors except energy ended in the red Tuesday. Breadth favored decliners 7-1, and there were 1154 new lows vs 216 new highs. Big caps on the new high list included Exxon Mobile (XOM), Chevron (CVX), Royal Dutch Shell (RDS-A), Royal Bank of Canada (RY), and The Toronto-Dominion Bank (TD). That’s a very unconventional vanguard but trust me—energy and banks can lead for a lot longer than you expect. Higher bond yields tend to be a headwind for growth stocks in the technology and consumer discretionary sectors, which were among the worst performers. The 10-year US Treasury yield jumped 10 basis points to 1.88%, its highest level in two years. Yields closed at 1.34% on December third.

West Texas Intermediate crude oil advanced 2.8% to $86.16 a barrel, hitting its highest intraday level in more than seven years earlier in the day, after a drone attack in the United Arab Emirates threatened further supply disruptions. Like we need any more trouble. In economic news, the highlights of Tuesday's data schedule were a sharp decline in the Empire State manufacturing index and a dip in home builder sentiment, both for January. The headline Empire State index, the first manufacturing reading for January, fell to -0.7 from 31.9 in December, showing clear signs of an impact from omicron and the harsh winter storm earlier in the month. There were declines in the readings for employment, new orders, shipments, and prices components of the Empire survey, with the new orders measure dipping below the breakeven point.

The National Association of Home Builders Housing Market Index slipped to 83 in January from 84 in December, and was unchanged from the reading a year ago. The NAHB said that while demand remains strong, supply chain issues, labor shortages, and rising materials prices are holding back home building. In company news, Goldman Sachs fourth-quarter earnings missed analysts' estimates as the investment bank recorded higher operating expenses and lower revenue in its global markets business. Shares fell 7%, the steepest decline in the Dow, while JPMorgan Chase (JPM) was down 4.2% after reporting a surge in expenses and a revenue miss last week. Microsoft (MSFT) agreed to acquire videogame maker Activision Blizzard (ATVI) for $68.7 billion, sending the latter's shares higher by 25%, the biggest gain in the S&P 500.

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