WASHINGTON, February2, 2018: If investors ever doubted that life is a wheel of fortune, Mr. Market has been re-teaching that lesson this week – good and hard. Market averages were altready looking extended as January’s massive seemingly unstoppable rally steamed ahead. But the averages finally stumbled mid-week. Friday, the Dow Jones Industrial Average (DJIA) and pretty much everything else investible, got pancaked, big time.
Almost immediately after Friday’s opening bell, the bellwether DJIA hit a huge air pocket, dropping over 300 points in a matter of minutes. After that opening downdraft, the Dow tried to recover a bit. But around 10 a.m. ET, another intense selling wave hit, driving the DJIA back down over 350 points.
As of 10:17 ET, the Dow is trying to snap back again, feebly. It currently stands at 25,900, give or take, off roughly 285 points and still fluctuating madly. Odds of having a bullish finish are about as dim as the Republican-led House deciding not to release that notorious 4-page memo because they changed their minds.
It’s true, as former ETF Digest guru Dave Fry often put it, that the DJIA “is for the tourists.” In other words, representing only 30 U.S. stocks and the largest cap stocks at that, the Dow only measures action in the big guys of Wall Street. On the other hand, the sheer size and scope of the Dow stocks often influences the rest of the market as well.
That’s why, with the DJIA already down over 1 percent on the day, the broader-based S&P 500 and the tech-heavy NASDAQ are also down by roughly the same percentage.
Aside from being highly overbought up until the end of last week or so, market averages and the stocks that populate them were technically cruising for a bruising as we indicated in an earlier CDN article this week. Topping oil prices, the changing of the guard at the Fed as Janet Yellen departs along with Wednesday’s so-so Fed minutes, increasing interest rates, and the political scandals in Washington all steadily eroded January’s irrational exuberance, which was primarily ignited by the bullish implications of the December 2017 GOP Tax Cut legislation.
But since at least 2005 and perhaps before, in this market, good news continues to be bad. The bullish New Year celebration on Wall Street was already too much good news when even more good news hit:
“Nonfarm payrolls grew by 200,000 in January and the unemployment rate was 4.1 percent, while wages saw their biggest jump since the end of the Great Recession, the Bureau of Labor Statistics said in a closely watched report Friday.”
Significantly, even though it blipped up slightly in January, the much broader U-6 unemployment number we follow here stood at 8.2 percent, roughly 2 points lower than the day Obama left the White House.
The clear indication that American workers’ wages were on the increase for the first time in a very long time was also great news for Deplorables and the mega-rich alike. All seemed well with the world.
But good news is bad. Low unemployment puts pressure on wages, and wage hikes eventually mean inflation. Bring out the garlic and the crucifixes! When the employment and wage news was announced this morning before the opening bell, the bears were, well, loaded for bear.
The quick jump in interest rates after the employment and wage numbers were announced only added to the negative mood.
It also didn’t help that Apple (symbol: AAPL), which reported record-breaking earnings for its first quarter, accumulated those earnings without selling as many iPhones as analysts and pundits had earlier predicted. Given the Street’s souring mood, bears and short sellers kicked AAPL shares to the curb Friday morning, big time. Shares are currently down $4.18 per share, after taking an earlier shellacking of over $5 per share on the downside.
Currently, Apple is down nearly 2.4 percent on the day after having a pretty horrible week to start with. Tim Cook’s iffy Q2 guidance after Thursday’s close didn’t help much either, although the company has been purposely downplaying its forecasts for years.
No matter, though. Investors had decided in advance that they’d be disappointed with iPhone sales, and that was that.
Interest rate news, Apple news, and energy prices getting hit again was the wrong trifecta of headlines to launch the final trading day of this week.
Today is just one of those days when you find something other to do than stare in horror at all the virtual red ink accumulating on your computer screen. Today won’t end well.
That said, we are already reaching extreme oversold conditions on the McClellan Oscillator. It’s a highly reliable measure charting overbought and oversold conditions. When extremes on either end are hit, a strong, opposite move is ignited. The indicator has been nearly infallible. The only thing it’s not always good for is telling you whether the snapback move will be a short one or a long one.
We’ll find out next week if and when the bullish snapback begins. In the meantime, we’re holding and keeping the Maalox bottle close at hand. If you think about it, maybe we’re just getting sick of all the good economic news.