Leaders Index 2-2-18

The market really got pasted yesterday. The major averages took their biggest hit in over a year. After opening lower they worked their way down almost nonstop for the rest of the session. The losses were significant and the New York averages led the way lower. The SPX declined 2.12% while the COMPQ was off by 1.96%. These are real losses for the major averages. All the major averages finished the day at their intraday trading lows, a sign that there was no buying support coming in as prices fell. Volume was higher across the board and above average on both exchanges, showing that large institutional players were selling stocks heavily. This also produced a fresh distribution day on all the major averages. Leading stocks were hit hard as well with the leaders index declining 2.59% on lower but still well above average volume. The index closed low in its trading range and broke below the important 17dma support, and now resistance, level. This is the first real break of this important moving average in months. The relative strength line of the leaders index is also getting close to its 50dma, showing that quality growth stocks have been lagging for a while now. It is amazing how quickly things can change. A week ago the major averages were making new highs and things looked okay. The leaders index was also looking solid at that time. In the last week real damage has been done to the market. There has been a cluster of distribution days that has brought the level of distribution to worrisome levels and major support levels have been broken. The small and mid- cap averages are now below their critical 50 dma’s and other major averages have broken below their short term moving averages. The situation looks a little different than it has in the past. Much of the sell- off has been tied to a significant back up in interest rates across the globe. Rates in the United States are at their highest levels in several years. The situation with the central banks is changing also. The Fed has ended QE and is now reducing its balance sheet in a switch to QT. The European and Japanese centrals banks have said they will begin to taper off their QE this year. This has been the support under the market for years. There have been so many times over the last couples of years when the market looked like it was going to have a real correction only to have it turn around and head into new high ground. This time may be no different and as always you have to let the market tell you what it is going to do, but the damage this past week has been real and a much more cautious approach is warranted now. Jerry