After a promising first four days of the week, the S&P500 registered a major retreat on Friday, resulting in a loss for the week. The total loss was about 1.4%. Mitigating this loss, was the muted volatility. While prices dipped on the week, the VIX index closed relatively unchanged from the prior week. Also suggesting that panic selling has not set in, at least not yet, was the low volume of transactions in the S&P; traders were certainly not rushing for the exits.
Unfortunately for Main Street USA, most of the macro results disappointed last week. PMI manufacturing, ISM manufacturing, construction spending, PMI services, factory orders, ISM services, international trade, initial jobless claims and consumer credit ALL missed their respective estimates. Even worse, the payrolls results were a disaster. The payrolls figure missed badly. The unemployment rate also missed. And the average hourly earnings result and the average workweek result only met expectations…no miss, but not a beat. So last week….while it was only one week….was a bad one in terms of the US economic picture.
Finally, the technical picture for the S&P500 is now focusing in on the 200 day moving average, which was violated several times last week. Although the S&P did not close the week below this critically important level, it finished the trading day on Friday just a few points above it. What’s important to remember is that there are a LOT of traders and investors who look to the 200 day as their ‘line in the sand’, which if crossed, will tell them to GET OUT of the US stock market. So the fact that the S&P closed above this critical level is positive, but what’s now worrying everyone is that the there’s very little room for error now. One more bad day like last Friday is all it would take for this level of support to break and for all hell to break loose in the US stock markets. Because if the 200 day fails, then this will almost certainly cause billions of dollars to rush out of the US stock markets…..leaving little else for prices to do but fall, and fall by significant percentages.