The WSJ reports,''Since hitting an intraday high of 1897 on Friday, the S&P 500 is off about 2.7%. The index fell as low as 1841.46 on Monday, before closing at 1845. The 1840 level, in fact, is one that’s been noted by several market observers as a key technical marker. For now, it’s a support level--since it held. That’s a good sign for the bulls, as far as it goes. But Monday’s slide, and that 1845 close, means the downward pressure is still there although the S&P futures contract suggests a flat opening Tuesday.
Meanwhile, the Nasdaq Composite continues to be the hardest hit of the three major indexes, and is exerting pressure on the Dow and S&P 500. The Nasdaq is down 6.4% from its 14-year high of 4359, hit March 5, and is down 4.6% the past three sessions (the worst three-day slide since November 2011). The Russell 2000 is also taking on water, down 6% since hitting its all-time high on March 4.
The Nasdaq and Russell were up 40% and 39%, respectively, in 2013. If those two surging indexes, filled with small-caps, momentum stocks, and volatile tech names, are the leading edge of a selloff, it’s a bad sign for the market. “Overall, this [small cap] break to new lows which just occurred in the last couple days is a warning sign, and indeed problematic for the larger market, and despite nearing initial support, is something that’s causing a meaningful pullback in momentum,” Mark Newton, chief technical analyst at Greywolf Execution Partners, wrote in a note to clients.
Why is the market in such a cranky mood? Friday’s jobs report more or less got the jobs market back to its pre-winter growth trend, and David Levy of the Jerome Levy Forecasting Center anticipates that analysts will underestimate the bounce back from the winter, leading to a series of “upside surprises” in the data. That should be good. But at the same time, the market is grappling with the reality that the Fed, even if it’s moving slowly, is removing its monetary support.
“What if the current stock market correction turns into something more protracted and investors just don’t buy the growth rebound without the Fed remaining at the helm?” wrote Andrew Wilkinson, the chief market analyst at Interactive Brokers. If the market doesn’t like that scenario, it’s got a problem, he noted: the problem being that everyone “is on one side of the boat staring over the edge at the prospect of imminent Fed tightening.”
