Though last Monday kicked off a positive week with one of the most bullish days investors have seen in over a year, the enthusiasm faded by Thursday. It outright reversed on Friday, with the S&P 500 closing down 1.88%. The prior five trading days saw net gains of 2.23%, but clearly the market ended the week pointed in the wrong direction.
This dip, however, is unlike other dips observed during the persistent bullishness over the last fourteen months.
VIX Trending Higher
This time, with this pullback, the CBOE S&P 500 Volatility Index (or VIX) has not eased back from a temporary spike. Instead, the VIX - a contrarian indicator - has closed higher more often than not over the last three weeks. It's the first time since September of 2008 this has occurred, when the bear market was going from bad to worse. It's a trend that should worry investors, as the VIX tends to lead and forewarn of major market trends (inversely).
NYSE Up/Down Volume Trending Bearishly
While the variance of the NYSE's (or any exchange's) 'up' volume and 'down' volume can be wide from one day to the next, over the span of three weeks, the market's true depth trend comes out. And, over the past three weeks, the NYSE's down volume has easily outpaced its up volume. During this time, the NYSE has averaged 878 million shares in daily down volume, and only 611 million in daily up volume.
Again, being a leading indicator, investors should be concerned; the market trend rarely reverses without the up/down volume trend curing such a reversal a few days before it materializes. There's no hint of such a reversal at this point.
Telecom On Top
The alternative long-distance carriers technically won the week with their 11.5% gain, largely led by Vonage (VG). However, there was no specific news to point to as the prompt - Vonage posted last quarter's numbers on the 5th.
Perhaps investors had time to mull Q1 results, and decided the VOIP provider's new international calling plan was indeed a fruitful decision for the company. Or, investors could have also continued the migration into safer arenas like telecom now that the broad market's vulnerability is showing. The fact that last week's third-best performer was the wireless sector, with a 9.6% gain, certainly supports the sector rotation idea. [The heavy electrical equipment group was second-best last week, with an 11.3% gain.]
Consumer Electronics Drag the Bottom
Technically speaking, the fertilizer and agricultural chemicals group were last week's worst performers, losing another 6.0%. That trend is nether new nor surprising though.
The next-worst performer - consumer electronics - is a relatively new trend investors may want to heed.
Though the average consumer electronics stock only lost 2.0% over the past five trading sessions, it's the third week in a row the like of Sony (SNE), Panasonic (PC), and Harman International (HAR) haven't seen any significant bullish relief at all. That much persistent bearishness is often a sign of a paradigm shift investors may not want to ride out.
Earnings Season a Disappointment
While earnings season is closer to its end than the beginning, a few more important companies have yet to report. So far though, of the 3000+ major companies that have posted results, 58.8% have beat estimates, 32.4% have fallen short, and 8.9% net their analyst estimates. That's slightly weaker than the normal 'beat' rate of about 65%, and the normal 'miss' rate of about 25%.
Related Reading
- Using Sector Rotation
- How to Spot Market Reversals With the VIX
- Beginner's Fundamental Stock Analysis
James Brumley - As a former stock broker and analyst, turned writer, James Brumley can tell you what most advisors can't - or won't. His belief is that ...
