STOCKS SELL OFF IN CONTINUATION OF LAST WEEK'S DEFENSIVE WARNINGS --
STOCK INDEXES CONTINUE SELLING THAT STARTED LAST WEEK...The selling of stocks that started late last week intensified today. That shouldn't be too much of a surprise considering all the warnings given by the various markets as described in these messages. They include the plunge in Treasury yields signalling a flight to the safety of government bonds. And the buying of defensive stocks groups like utilities and REITS, while selling economically-sensitive groups like cyclicals, energy, and financials. In addition to the buying of gold and its miners, while selling copper and its producers. All of those trends are in evidence again today. Friday's message also showed that stocks tied to travel and entertainment were the hardest hit owing to fears about the spread of the coronavirus in China. They included airlines, cruise ships, gambling and hotel stocks. Those are also among today's biggest losers.
FIFTY DAY MOVING AVERAGES ARE NOW IN PLAY... Friday's last sentence suggested that major stock indexes might soon test their 20-day moving averages. Those intial lines of defense have been broken today. A bigger test of support may now come at their 50-day moving averages. Chart 1 shows the Dow Industrials sitting just above its blue 50-day line. At the same time, its 14-day RSI line is weakening; while its daily MACD lines have turned negative. The same is true of other two stock indexes shown below.
TRENDLINE SUPPORT IS ALSO BEING TESTED... Charts 2 and 3 show the S&P 500 and Nasdaq Composite Index also testing a rising support line drawn under their October/December lows. Add in the fact that stocks had gotten dangerously stretched to the upside; and were due for a pullback of some type. There's usually a catalyst for that to happen. The coronavirus in China is the current catalyst. None of today's action is much of a surprise. The big question is how big a pullback will it be; and how long will it last. So far, any chart damage has been relatively modest. And well within the norms of a normal pullback. We'll take a closer look as the week develops.
