Stocks were slammed this week after the results of the 2012 presidential and congressional elections. In fact, it was the worst performing week for equities in months. The Dow Jones Industrial Average (chart) lost 2.1%. The Nasdaq (chart) -2.6%, the S&P 500 (chart) -2.4% and the small-cap Russell 2000 (chart) finished the week lower by 2.4%. With the election producing essentially no change in Washington, fears of the fiscal cliff playing out and much higher taxes took center stage and sent the markets spiriling. Furthermore, all of these bellwether indexes are now trading below their respective 200-day moving averages. For most market technicians and certain institutional investors, the 200-day moving average is a key technical metric that is relied upon as to the future direction of stocks or indexes. Personally, I would need to see several days of trading and closing below the line in order for me to completely change my view of where stocks may be headed.
Now that the election is behind us, we can all now begin to focus on not only what Washington will or will not do, but what really is happening behind the scenes of the economy and corporate America. Q3 earnings reporting season is winding down and as expected corporate profits have been affected by the slowing global economy. Between now and year end, I will be paying much closer attention to the economic numbers here and abroad, and even closer attention to the underlying technicals of the markets, which are beginning to show some cracks. As previously stated, in my view a couple of days of the indexes trading below the 200-day does not concern me too much, however, if we see a repeat performance next week with stocks continuing to decline, we very well may be in for a meaningful reversal that the bears have been waiting on. Good luck to all.
Have a great weekend 🙂