The S&P500 dropped back by 1 percent last week on slightly higher volume that the week before when it rose in price. Volatility, as would be expected in a down week, rose somewhat….but still nowhere near any type of panic levels.
The week’s economic reports were particularly poor. Core producer inflation jumped much more than expected. Retail sales disappointed, and the core sales figure (which exclude auto sales) was a total disaster—instead of rising 0.6% as predicted, it fell 0.4%. The Empire State manufacturing survey went negative; it was supposed to rise for the month. Industrial production plunged, 100% more than it was expected to fall. This was the biggest miss in industrial production since mid-2012. Housing starts also missed, as did initial jobless claims. Core consumer prices, like producer prices, rose twice as much as expected. And finally, leading indicators were weaker than expected. The sole bright spot, in the sea of disappointing results, was a slightly stronger consumer sentiment result….as if that makes any sense given all the other misses.
In terms of technical analysis, the overbought condition has hardly changed….despite last week’s price retreat. On the weekly charts, the S&P is somewhat below its upper Bollinger band, but still on its 50 day moving average and well above its 200 day moving average. On the daily charts, prices have backed off he upper Bollinger band, but they are far from suggesting that a big drop is imminent.
But what is concerning about US stock prices is that prices, now that April is coming to an end, are still just about where they were on January 1st, almost four months earlier.
This is something that hasn’t happened in a while. Does this necessarily signal trouble? As mentioned already, not necessarily.
But this yo-yo four month pattern does suggest that buying forces are weakening and that the almost inevitable climb that we’ve been enjoying for four years (since the summer of 2011) may be in danger of pausing……at the very least.
Very often, this pattern does form the beginnings of a more significant retreat for equity markets. But as usual in this new world of Fed support via Quantitative Easing, we’ll need to wait and see what actually happens!