Klein Market Summary-October 22nd, 2012
Klein Market Summary
October 22nd, 2012
Current Market Facts:
|Technical Status||Market in Correction Beginning Week 3|
|Other Observations||Another wave of Distribution punished the weakened NASDAQ
GOOG, AAPL, and AMZN have led most tech stocks lower
|Feel of the Market||Selling continues to escalate as tech panic rises|
Important Levels on Key Indices:
The NASDAQ Composite sold off on huge volume on Thursday and Friday to close 5% off recent highs at the important 3000 area. While Friday’s volume surged 36% above average because of options expiration, Thursday’s was also more than 20% above average. This was tied to weak action in AAPL, GOOG, and AMZN, which combine to equal 1/6th of the total weighting on the NASDAQ Composite.
With investing in stocks, the most dominant probability of stock success is tied to market direction. With the weakening of the markets, and especially the NASDAQ indices, the probability of making money has plummeted. I would also note that while we occasionally make exceptions for high volume that is options driven, we would not make an exception for the price action on Friday. So that action should be looked at as unequivocal Distribution.
There is an important nuance in the current market. The S&P 500 has an elevated level of Distribution, but lies only 2% below recent highs. While the NASDAQ is dominated by large-cap tech stocks, the S&P 500 has been stabilized by large cap bio stocks, like MRK, PFE, AMGN, and BIIB. It also has been buoyed by construction and retail groups, which are leading the market. Whether these groups can remain resilient as tech corrects remains to be seen.
Leading institutional investors can afford to be patient ahead of the election, as should we. This is a market where defense must dominate. The negative effect of earnings this season has been broad, so far. With this week bringing many reports from leading stocks, the action should be watched closely. Also, with the election as a major catlyst, now just 2 weeks away, this correction could be short-lived. Without trying to predict where the market is going, it is important to anticipate how near-term events could impact the market.
The S&P 500’s resistance highs of 1440 mirrored the high of May of 2008 before the Bear Market began to take hold in earnest. The 2007 high on the S&P 500 was 1576. These levels should be watched closely. If the S&P 500 breaks through 1440 and maintains that level, there could be another 10% of market upside before the next major level is reached.
- The Klein Market Summary is a professional interpretation of the general stock market conditions that is updated on a weekly basis. Joel T. Klein is the portfolio manager of the investment partnership Blue Diamond Capital, LP. He writes the summary using select technical and fundamental data. The Klein Market Summary is not intended to provide investment advice of any kind, and is only provided for the entertainment of the reader. It is typically updated Monday morning, weekly. Please e-mail firstname.lastname@example.org, if you are interested in receiving this free weekly update.
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