Aug 19

The Market Today 8/19/13: Downside


What a difference a week can make! Since last Wednesday, August 14th, the market has been moving steadily lower, with growing conviction as the day’s progress. How much more downside do we have? Some downside targets are: 1,632, 1,614, and 1,589. These are the levels to watch on the S&P 500. What is causing the market to change direction so abruptly, and move lower? Has there been a significant change in the last week, that would cause the market to move sharply to the downside? Many reasons can be cited. The main culprit, is the Fed tapering. It seems daily that the mindset changes whether they will start tapering in September, or December. Based on the latest jobs numbers, would favor a December taper. However, the market is pricing in a September beginning to this event. Earnings have been another reason that we have seen this downside. Cisco Systems and Wal-Mart last week, issued weaker than expected earnings, with guidance going forward that was also weaker than expected. The market looked at several things other than just their earnings reports. Mainly, that Cisco was letting 4,000 workers go. As for Wal-Mart, they are regarded as the pulse of the lower end consumer. As a group, the lower end, if they are starting to throttle back their purchasing, this would have a negative impact on the overall growth of the economy. Many economic projections for GDP growth, are roughly growth between 2-3%. With the results from both Cisco and Wal-Mart, this target will be difficult to achieve.

Downside: Stocks

Since last Wednesday, we have seen two downside targets not only hit, but went through like a hot knife in butter. The first was 1,671, and today was 1,650. The downside targets from here are mentioned above. The market will most likely continue it’s trend downward. If you look at the chart above, look at the RSI indicator. It broke through the bottom line rather convincingly. Below this bottom line, is referred to be oversold. It appears, as if it may stay oversold, and thus, may stay down for a the foreseeable future. I say this, because you compare this market, from that of the last market sell off in June, the market in June only touched the oversold line, and reversed back to the upside. Again, by referring to the chart, this broke through that bottom line, and continuing to move lower. Since this move has been quite strong, to see an slight oversold bounce would not be a surprise. Should this oversold bounce indeed happen, use this as an opportunity to take profits, raise cash, and hedge the rest of your portfolio.

Downside: Bonds

The downside as far as the bond market is concerned, can be very difficult to write about. I say this, due to the inverse relationship between interest rates and price. So, the best way to write about this, would be to say that the downside is referred to by price, and upside by yield. They are one in the same. Since the best way to show this is through yield, I will focus on this right now. Since May 1st, we have seen the yield on the 10 year move from a low of 1.61%, to today’s close of 2.88%!! This is a very strong move to the downside on price, and upside in yield. The target I see are: 3%, 3.3%, then 3.75%.

Author Sean Rhodes is an expert in financial markets and helping you manage your money. For a no-risk consultation, check out Sean at the following link for more information and expert advice on investing in equities and helping clients protect from market downside!!

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>