As Q1 draws to a close, Dow Jones Industrial Average is trapped in trading range while Nasdaq and Russell 2000 head south.
The Dow Jones Industrial Average (ARCA:DIA) closed up 58 points on Friday and gained 0.1% for the week.
The SP500 (SPY) posted a 0.5% gain on Friday but finished down 0.5% on the week.
The big declines have occurred in the Nasdaq (NASDAQ:QQQ) and Russell 2000 (ARCA:IWM) with the Nasdaq falling 2.8% for the week and the Russell 2000 (IWM) down 3.5% from last Friday’s close.
The sell off in the biotech sector (NASDAQ:IBB) has been particularly fierce with the sector falling approximately 13% since its late February high.
So while the major indexes remain relatively table, traditional market leaders like the Nasdaq Composite and Russell 2000 point to possible underlying weakness in the broader market.
On My Stock Market Radar
The chart of the Dow Jones Industrial Average (DIA) shows us that the major index has been in a trading range for about a month with significant volatility even as the overall movement has been flat.
Relative strength remains in the neutral range while momentum remains weak and the index has chopped between the 16,000-16,500 range.
The 50 day moving average continues to roll over towards a more negative configuration while the index remains well above the 200 day moving average.
The situation is quite different in the Nasdaq Composite and Russell 2000 which have fallen below their recent trading ranges and significant moving averages.
The Russell 2000 (IWM) fell below its 50 day moving average last week and is down approximately 4.8% for the month of March while the Nasdaq Composite (QQQ) is also below its 50 day moving average and down approximately 5% for the month of March.
“Story” stocks and “mo-mo” stocks have been hit hard this month as investors rotate away from risk stocks and into safer, less volatile investments.
Some of the more notable moves:
Twitter Inc (NYSE:TWTR) down approximately 28% from its Feb. 5th recent high
Facebook Inc (NASDAQ:FB) down approximately 16% since its March 10 recent high.
Amazon.com Inc (NASDAQ:AMZN) down 10.7% since March 18th
Google Inc (NASDAQ:GOOG) down approximately 8% since February 25th.
The sell off has been particularly nasty in the biotech sector with big names like Gilead Sciences Inc (NASDAQ:GILD) dropping 18% since February 25th and Biogen Idec Inc (NASDAQ:BIIB) shedding approximately 16% since March 18th.
A significant “flight to quality” has also been seen with money exiting “risk on” sectors like biotech and the Nasdaq and heading for safe havens like Utilities (XLU) and U.S. Treasuries (ARCA:IEF)
Healthy markets are generally ones in which the “rising tides lifts all boats” and this sharp divergence between the major indexes and traditional market leaders like the Nasdaq and Russell and froth stocks flash a significant warning signal regarding the ongoing health and potential upside of today’s market.
On the other hand, there has been a sharp jump in the prices of some emerging market indexes like Brazil (ARCA:EWZ) and commodity prices (ARCA:DBC) over the last couple of weeks.
In economic news, personal income and spending rose last week while new home sales fell 3.3%.
January home prices were up 13.2% year over year and consumer confidence rose.
Pending home sales fell, the HSBC China Flash PMI fell further into contraction territory at 48.1 and U.S. PMI dropped to 55.5, down from last month’s 57.1 and missing expectations.
February durable goods posted a gain of 2.2% while weekly jobless claims fell and the Q4 GDP revision came in at 2.6% growth, up from the previous estimate of 2.4%.
Next week brings a wave of important economic reports:
Tuesday: March Markit PMI, March ISM, February Construction Spending
Wednesday: March ADP employment, February factory orders.
Thursday: weekly jobless claims
Friday: March Non Farm Payrolls report and Monthly Unemployment
Friday’s unemployment numbers will be carefully watched, as always.
Bottom line: Lots of mixed messages this week as U.S. indexes continue to look weak and large cap diverges from small cap, tech sector and biotech. Treasuries continue to gain even as the Fed tapers and so interest rates were expected to rise, not fall. Commodities and emerging markets show a sharp bounce in recent days, but gold remains in a sharp downtrend.
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