Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
The current market can definitely be described as divergent. Apple (AAPL) and its 10%+ weighting in the NASDAQ (and much larger weighting on the very popular QQQ ETF) is keeping that index in seventh heaven. A host of larger caps seem to be keeping the DJIA and S&P 500 in good shape as well… even as the Russell 2000 has cleanly broken down below the 20 day. We have been harping on this divergence for weeks and highlighted the break late last week – I see it in quite a few financial media outlets and the general stock market blogosphere today.
So we could be in that space where “the leaders lead” – and they just so happen to be mostly large(r) caps – while the rest of the market begins a correction. Long time readers will remember this point in a pullback as one where I usually said “the generals need to be taken out”. (Correction? yes a minor one – see the Russell 2000, down 3.6% from peak)
Often that is usually how it turns out (i.e. the generals are the last “to go”) but sometimes in milder pullbacks, you have situations where the broader market goes through a correction whereas these select stocks stay ‘teflon’. That said it seems improbable that a senior index can go that many months without even testing (or breaking to scare the complacency of the ‘buy the dip’ crowd) the 20 day or 50 day moving average at some point. Even the bulls are at a point they would like a ‘healthy’ pullback. But until Apple goes, it is hard to really see any significant damage in some of the senior indexes. Until even the weakest of moving averages, like the 20 day, one has to respect the power of the uptrend in the larger cap indexes.
Outside of the indexes, we are done with the heart of earnings season and now attention will probably focus more on the macro. A lot of “good news” has been priced into the market, but then again last week’s miss on ISM Manufacturing in the U.S. was completely ignored – in large caps at least.
This morning European PMIs came in weak, but really is that a surprise. Perhaps only insofar some people are drinking serious Kool Aid.
- The Markit euro-zone composite purchasing managers index fell to 49.3 in February from 50.4 in January, coming in below an earlier, preliminary estimate of 49.7, data showed Monday. A reading of less than 50 indicates a contraction in private-sector business activity.
- “Perhaps more worryingly, the ongoing steep declines signaled by the weak surveys for Italy and Spain suggest that a return to growth for these countries still looks to be a long way off,” said Chris Williamson, chief economist at Markit.
- On a national level, Germany’s composite PMI fell to a two-month low of 53.2 in February. Italy’s PMI dropped to 44.7, while Spain dropped to 42.9 — both figures are two-month lows.
In the U.S., Friday’s employment data will be where most eyes sit. Based on weekly claims it should continue to harbor good data but it would seem surprising to see a continued drop in the unemployment rate unless we have encouraged even more good citizens to leave the labor force. Consensus is for 208K jobs added versus last month’s 243K.
Later today we have ISM Non Manufacturing… consensus is for a decrease to 56.1 from last month’s 56.8.
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