This week the Dow Jones Industrial Average (DJIA) and S&P 500 (SPX) experienced their biggest drops in years especially if you look at the lows for the week. But this was not just a sell-off in the United States, there was also a significant global sell-off underway.
In the world’s second largest economy, China, the Shanghai Composite was down big for the second week in a row. It dropped 332.23 points or 9.6% and shattered a 2 year uptrend line.
China’s Shenzhen Composite dropped 142.267 or 7.8%. It closed the week at the lowest level since September 18, 2015. Over the last 2 weeks it has dropped 13.9%.
Friday February 2nd was Ground Hog Day in the United States. The stock market woke up…something changed. But it wasn’t just the stock market in the United States, it was happening around the globe. But first back to the famous ground hog, Punxsutawney Phil.
Punxsutawney Phil saw his shadow and there’s suppose to be six more weeks of winter. In honor of this day, I watched the Bill Murray movie, Ground Hog Day.
The big event for the stock market this week was the Federal Reserve Meeting on Tuesday-Wednesday. On Wednesday the Federal Reserve announced no change to interest rates but did say they plan to wind down their $4.5 trillion balance sheet starting in October.
This is the balance sheet that they created thru the series of quantitative easings since the Financial Crisis. This $4.5 trillion balance sheet is made up of treasuries and mortgage backed securities.
So it is not unusual for the stock market to become a little cautious and tight during a Fed meeting but this tightness continued thru the remainder of the week. When you see the Dow Jones Industrial Average (DJIA) weekly chart in the video below, you will see why I am calling this a compression week. It is one of the smallest weekly trading ranges in several months.
Compression and expansion seem to cycle back and forth in the stock market. So now that we have had a compression week, I am watching for some fireworks to happen in the market…it may take a couple of weeks.
This is like a flag being waved saying ‘hello, the market is telling you something’. Like a big cat watching you. You never know when if is going to explode into action.
In the video I review the DJIA daily and weekly charts, look at one of my key indicators and review 3 key ETFs. This is just a brief snippet of what I provide my Insider Members in the Weekend Market Analysis video. Also in today’s video I review Apple (AAPL), Facebook (FB) and Netflix (NFLX).
This post is a repeat of one I published over two years ago. The title of that July 2014 post was “When you look at the chart, what do you see?” Some of the details might not be current but the idea sure is. So what is the chart’s story?
It’s interesting to read the financial press. They always give a reason for the market’s action. I can almost picture them sitting around and trying to figure out what they are going to say for any given day. So the Dow was up 28.7 pts yesterday, what did they say?
Reuters: “Stocks managed to score modest gains on Friday, but the S&P 500 posted its biggest weekly drop since April as investors showed only mild enthusiasm after getting their first glimpses of earnings.”
Bloomberg: “U.S. Stocks advance as Internet rally offsets Portugal”
MarketWatch: “The U.S. stock market closed higher on Friday after the main benchmarks picked up steam in late afternoon, trimming weekly losses.”Continue reading
