The difference in the market from the prior Friday to this Friday was night and day. The prior Friday saw the Dow rally +397 points. This Friday was the Nasdaq collapse with a -146 point drop.
The crash in Linkedin and Tableau Software killed sentiment for anything in the technology sector with investors hitting the sell button and dumping their portfolios. The selling crossed sector lines with retail, biotech, healthcare, semiconductors, etc, all getting crushed.
There was no basis in fact for the decline across all sectors. Sometimes when confronted by an astounding move in some part of the market, like the $84 drop in Linkedin, you quickly sell everything until you figure out what to do. Interactive Brokers even has a button on their trading platform that closes all outstanding positions in one click. That is what happened on Friday. Enough traders panicked to knock dozens of stocks down by double digit losses. That triggered ETF selling and the market crash.
The charts are negative. I can quote potential support points and rebound hopes but the charts are still negative. In theory, the irrational selling late last week that sent the Nasdaq to the lowest close since October 2014, could be erased by dip buyers on Monday. Portfolio managers have had all weekend to reevaluate their positions and some are probably wondering why they dumped stocks on Friday.
They could come to work on Monday with a calmer frame of mind and start shopping for bargains. With the Chinese markets closed for the week that eliminates one of the weights on the market. There are very few economic reports and none are major. The only real hindrance will be the Janet Yellen testimony to the House on Wednesday and the Senate on Thursday. Given the recent market volatility and the miniscule 0.7% GDP for Q4, she should try to calm the markets with some dovish commentary.
Resurrecting the Nasdaq from the 52-week closing lows may be a challenge. I could easily see an oversold rebound on Monday but that kind of damage has a lingering quality. A short term bounce could attract additional sellers that missed their opportunity on Friday. A return to support at 4,292 is very likely next week. If it does not occur, I would be very surprised but happy.
Earnings are not going to be a big factor. There are a lot of companies reporting but the number of market movers are slim. Disney on Tuesday and Cisco on Wednesday will be the most important with Tesla providing headlines but not much market movement on Wednesday evening. The rest of the reporters are informational but not normally market moving events.
The S&P futures are up +7.50 at 8:30 ET on Sunday evening. That suggests we could see a bounce at the open on Monday but there is still a lot of darkness before morning.
We were stopped out on Starbucks and I am recommending we reopen it on Monday. I also cancelled the existing Watch List entry on Disney until after their earnings on Tuesday. I will recommend new strikes and entry points next week.
The newsletter will be out on Monday evening next week. My son is getting married on Sunday and I will be out of town for the wedding.
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