Something odd happened in the past couple weeks and especially last week. The market was pretty much in free fall mode, something which thanks to central banks manipulating markets we haven't witnessed for a very long time - outside of January spectacular drop that led me to call for something bigger. Yet the collapse wasn't getting the coverage it deserved or that which is usually seen when volatility rears its ugly head in an extended bull market. Case in point, last Thursday. The Dow rallied 400 points, the headline was everywhere on financial websites until late in the evening, but the real news wasn't easy to find if you didn't have your eyes on stock quotes in afterhours trading. Indeed after the close and the 400 Dow point gain, futures cratered on the back of Amazon.com results. Amazon plunged almost 10% that evening in afterhours, and the Nasdaq 100 futures (which trade round the clock) went into freefall, erasing all the gains during the regular session. The following Monday the heavy selling resumed after a brief rally at the open. And it's only since then that talks of a bear market or bigger correction are making headlines in the financial press, although in European newspapers, it hasn't been much of a focus of interest yet. Even central bankers seem to watch in indifference. And that's what has started to worry people. Oh aren't they supposed to "support" the stockmarket (so-called "financial conditions") ? You can bet pretty soon, there will crying for central bankers help. But remember ... They can't do much anymore. They are just about out of ammo !
Warning flags may now be long term sell signal
Stocks as defined by their indices have actually been in a downtrend since the top on October 3, the definition of a downtrend in technical analysis is a succession of lower highs and lower lows. The market meets resistance on each rebound and falls again on resumed selling. October closed with an ominous sign on equity markets. The 200-day moving average, which defines a bull market, has indeed been crossed for good. The question is now whether equities can reclaim that key moving average. Today we saw a follow- up to the powerful rebound initiated on Wednesday but in afterhours Apple has disappointed (the iPhones now at $700-$1000 aren't selling as well anymore, can you believe ?). The stock is taking a 6% hit and took out recent lows. This could signal trend resumption for the Nasdaq. The Composite has fallen 15% from peak to trough. That is a very big move and the damage is severe on the charts (in investors psyche). With the FANG stocks seemingly topping out at least on an intermediate basis, you have to believe the "correction" is not over . At the very least it will take time to repair the damage and the year is likely going to close on a negative note, technically speaking.
