U.S. Stock Market - Feb 15th Week In Review

It was another mixed week for U.S. stocks. The Dow Jones Industrial Average fell for the second week in a row and the NASDAQ Composite was negative last week, but losses in both of these widely-followed indices were modest.  In fact, all major indexes posted multi-year highs at one point intra-day last week. The Russell 2000 Index of small-cap stocks was the standout performer (again) with a 1.03% gain on the week. This index is now up 8.69% year-to-date so far as compared to a gain of 6.57% for the S&P 500. The NASDAQ Composite Index is up 5.71% year-to-date. Traders, investors, and the financial media continued to focus on the steady stream of corporate earnings and domestic economic reports, European economic and political prospects, Chinese growth factors, Federal Reserve monetary policy pronouncements, and the potential ramifications of the “sequester” budget cut negotiations in Washington. None of these factors served as a meaningful catalyst for a major change in U.S. stock prices last week, but all were scrutinized carefully for any possible market moving consequences immediately ahead.

Here are Friday’s closing marks, with changes from Thursday’s close, and also with changes on the week, respectively:

                                                                          Friday’s Change                   Weekly Change

Dow Jones Industrial Average   13,981.76     + 8.37          +0.06%           - 11.21         - 0.08%

S&P 500 Index                            1,519.79     -  1.59          - 0.20%           + 1.86         + 0.12%

NASDAQ Composite Index         3,192.03     -  6.63          - 0.21%           -  1.84         - 0.06%

Russell 2000 Index                         923.15     -  0.61          - 0.07%           +  9.48        +1.03%

Friday’s news from Wal-Mart (WMT) looked interesting to me as a potential “economic” report that may have staying power beyond a single trading day. My read of this situation was that an email from Wal-Mart’s vice president of finance and logistics was leaked to the financial press with obvious negative consequences to the Company’s stock price. This VP’s comments were as follows: “In case you haven’t seen a sales report these days, February MTD (month-to-date) sales are a total disaster, …the worst start to a month I have seen in my 7 years with the company.” If we review the 1-minute intra-day trading chart of Wal-Mart on Friday, it’s not hard to see that this news hit the marketplace at around 2:03 PM ET. Wal-Mart’s stock was trading around $69.80/share at that time and within minutes of the release of this news WMT stock plunged to a low of $68.13/share (-2.39%). To Wal-Mart’s credit, its investor relations team acted quickly to settle Wall Street’s nerves by releasing the following announcement: “As with any organization, we often see internal communications that are not entirely accurate, that lack the proper context and represent individual opinions.” Wal-Mart’s stock price then rebounded to close at $69.30/share, but that was still down $1.52/share (or -2.15%) on the day. Is Wal-Mart’s news the smoking gun that turns out to be a major catalyst in moving stocks? Perhaps the American consumer is feeling the effects of higher payroll taxes this year so far? Maybe all those “back loaded” corporate earnings estimates for 2013 are too optimistic in the face of potential economic headwinds like a weakened consumer?

For your review, I have attached the daily bar chart for the Russell 2000 Small-cap Index. This particular chart also has all the buy and sell signals from my computer-based trading system. You will quickly note that there are no sell signals as yet on the current uptrend which began on November 16^th, 2012. As it turns out, there are no sell signals as yet on the daily, weekly, or monthly charts for any major index except the Dow Jones Utility Average, where a monthly chart sell signal was triggered in August 2012. My bearish view of the U.S. stock market right now continues to assume that sell signals will be triggered very soon.

I've also included the Nasdaq-100 Weekly Bar Chart (symbol QQQ) as an example of a potential head & shoulders top formation. This actively traded index product has lagged most other major indices this year so far, and it is one of the few noteworthy technical "non-confirmations" of the record highs witnessed in several major averages over the last two weeks. Of course, Apple is a major component of this index, which may explain most of the Nasdaq-100's lagging performance.

  

Bottom Line: I remain negative on the U.S. Stock Market. While buyers of every intra-day dip have been rewarded on this latest up-leg that began on November 16^th, 2012, I sense elevated levels of confidence and complacency that may be unwarranted given potential threats to stock investors on the near-term horizon. Many of the technical indicators that I follow are “overbought” and most sentiment gauges reflect extreme levels of bullishness among often-wrong investor groups. Corporate insiders are selling their own shares at a near-record pace and Wall Street’s full-year 2013 earnings estimates from analysts appear too optimistic.



Russell 2000 Daily Bar Chart with Computer-based Buy & Sell Signals



Nasdaq 100 Index (QQQ) Weekly Bar Chart - Potential Head & Shoulders Top?