Craig Johnson’s

Market Commentary

Monday, October 13, 2014

Financial Markets Recap for Last Week:

  •      Selling pressure sent all of the major stock indices significantly lower last week. The Dow Jones Industrial Average fared the best with a decline of less than 3% for the week, while the S&P 500 and the Nasdaq 100 dropped more than 3% for the week. The Nasdaq Composite and the Russell 2000 experienced drops greater than 4% for the week.
  •      The Dow Jones Industrial Average (DJIA) joined the Russell 2000 in negative territory year–to–date. The DJIA is slightly negative, while the Russell 2000 is down more than 9%. The S&P 500 and the Nasdaq Composite remain higher by roughly 3% in 2014.
  •      The Dow Jones Industrial Average, the S&P 500 and the Nasdaq Composite all broke through their 50 day moving average support levels and are trying to find support at their respective 200 day moving averages. The Russell 2000 had broken through both moving averages about three weeks ago.
  •      In addition to the selling pressure, volatility has increased dramatically in the past couple of weeks. During the previous week the Dow Jones Industrial Average (DJIA) declined more than 200 points on Wednesday, but rallied more than 200 points on Friday. Last week, the DJIA dropped 272 points on Tuesday and 334 points on Thursday. Nestled between those two days the DJIA gained 274 points on Wednesday. Friday’s close reflected a much calmer day than what had actually occurred, dropping more than 100 points. The DJIA had four swings of 100 points or more as the day progressed.
  •      Extreme weakness in crude oil continued this week, negatively impacting all energy stocks throughout the week. Selling early in the week hit the U.S. auto manufacturers due to lower margins and possible negative guidance. A warning by one of the semiconductor stocks on Thursday dropped the stocks in the semiconductor sector sharply lower on Friday. Telecom-equipment stocks were also punished on negative news Friday after a couple of companies in the sector issued warnings after the market close on Thursday.
  •      Gold rallied last week finding support at the critical $1180 an ounce level. Gold will need to hold that support in the coming weeks or much lower prices will occur.
  •      Crude oil dropped below $84 a barrel last week before closing the week above $85. Crude oil has declined from the recent high of $107 a barrel reached in June, which is a decline of more than 21% in four months from the June high to last week’s low.

 

Financial Markets Health and Outlook:

  •      The stock market remains bullish. One interesting note is that the Russell 2000 Index could be nearing the end of a multi-month correction, which could lead to a spirited rally in the coming weeks. (Repeated from last week). This seems more unlikely after last week’s decline, but the possibility does remain.
  •      The third quarter earnings season is upon us and many analysts worry that the third quarter numbers that will be reported over the next few weeks will be better than estimates, but the guidance for the fourth quarter will be well below estimates. This is one of many reasons that stocks have been pressured.
  •      The yield on the ten year U.S. Treasury note dropped for the fourth consecutive week reaching the lowest yield since June 2013 when it recorded a yield of 2.289% on Thursday. It closed Friday at 2.307%. Significant resistance resides at 2.65%. Significant support is at 2.10%.
  •            Wheat, corn and soybeans spent last week trying to form bases. All are deeply oversold and have rallied for two consecutive weeks.

Sources: bankrate.com, bloomberg.com, briefing.com, Dow Jones News, Financial Times, finviz.com, Investor's Business Daily, marketwatch.com, seekingalpha.com, Thomson Reuters/First Call, U.S. Dept of Treasury, yahoo.com and individual company web sites and press releases.

Leonetti & Associates, LLC views or opinions are as of a certain date and subject to change without notice.  The material contained herein is for informational purposes only and obtained from sources we consider reliable. We make no guarantee as to its accuracy or completeness.  References to specific securities and industries/sectors should not be considered recommendations to buy or sell any security or advisory service.  Past performance is not a guarantee of future results.

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