11:20pm (EST)
The volatility is picking up…
Last week the battle between the bulls and bears heated up with both sides throwing haymakers and landed punches at a feverous pace.
The market made some huge point swings as a number of events played key roles in which direction the market swayed. The bears landed the first serious blow on Tuesday when Standard & Poor cut its rating on Greek’s government debt to junk status while downgrading Portugal’s debt by a few notches. The market fell 2% for the day.
The bulls made up more than half of those losses back on Thursday as the market rallied 1% but Friday was another Goldman Sachs (GS, $145.20, down $15.04) headliner. The company could be facing criminal charges on whether they or its employees committed securities fraud.
This, and some sour economic news, sent the market into a tailspin as the indexes finished nearly 2% lower on average.
The Dow dropped 159 points, or 1.4%, on Friday to settle at 11,008. All 30 Dow stocks finished in the red but the bulls did manage to hold the 11,000 level. For the week, the Dow gave up 195 points, or 1.8%, but added 1.4% for the month of April.
The S&P 500 tanked 20 points, or 1.7%, and closed at 1,186 and just below the 1,200 level. For the five days, the index lost nearly 30 points, or 2.5%, but managed to finish April with a 1.5% gain.
The Nasdaq took the worst beating as it plummeted over 50 points, or 2%, to end Friday at 2,461 and under the 2,500 level. For the week, the Tech-heavy index gave up 69 points, or 2.9%, but finished the month up 2.6%.
In our Weekly Wrap last Sunday we talked about the possibility of the market challenging its previous highs or falling back into a trading range. There are numerous headwinds facing the market and the bears seem to have momentum but until the market breaks support we could be stuck in this choppy range for a few weeks.
It’s hard to make a case for the bulls to go much higher because there aren’t any near-term catalysts to take us there unless unemployment and housing start to really pick up and improve. We get another peak at unemployment this Friday.
The ranges we are talking about would be 10,800 to the downside for the Dow and 11,300-11,400 to the upside. The Dow traded as high as 11,308 and to a low of 10,938 which defined that range all week but the hundred and two hundred point swings are telling us a big move is forthcoming.
For the S&P 500 we are looking at 1,250-1,275 as a short-term top and 2,550-2,600 for the Nasdaq. However, with Friday’s drubbing we now have to watch 1,150 to the downside for the S&P 500 and for the Nasdaq we are watching support at 2,400.
We mentioned how volatility is picking up and on Friday’s sell-off the CBOE Market Volatility Index (VIX, 16.52, up $0.29) jumped 20%. The VIX had traded in the mid to upper-teens since late February and last week we popped over 20 several times.
The VIX measures “fear” on Wall Street and is one of the indicators we like to follow to try and get a read on the market. For our new subscribers, high readings mean that Wall Street is nervous and bearish. A low reading indicates calm and the Street is bullish.
The VIX has traded as high as 36 to its recent low of 15 over the past year and we called for the VIX to trade to 15 back on March 9th. This, along with our targets having been nearly been reached, is why we are a little cautious.
This is the tricky part and we talked earlier in the week about trying to call market “tops”. The easy bet right now is to call for a pullback or a correction and it does feel like we are walking on eggshells. While we still don’t know if the market has topped, we are using our price targets and the VIX as signs that we may have peaked over the near-term. However, this doesn’t mean the rally is over.
Over the weekend, Greece reached a historic deal with other euro-zone countries and the International Monetary Fund (IMF) for a three-year $145 billion bailout. The loans will help keep the country from defaulting on its debts and should help shore up the euro currency.
This will be a relief for the market come Monday morning and we will also get another batch of noteworthy earnings. The bulls still have low interest rates, solid M&A activity, and encouraging economic news that they can bank on to push us higher so let’s not throw in the towel until we see how this plays out.
We will be back in the morning with a fresh outlook and an update on how we open on Monday.
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