an tSionna {10.08.2014}

Yesterday's sharp drop in the markets brought into clearer focus for the average investor that stocks have been having a tough go of it lately. We've been talking about a certain uneasiness in the markets since last summer.  See here and here.  That uncertainty as well as seasonal factors are several of the reasons we downgraded our short term indicators back on August 5, 2014.   There's been a lot to digest the past few days so I want to sit back for a day or so and think through the implications from what we've been seeing recently.  I'll put out my thoughts on markets through the rest of the year out early next week.  I won't be posting until Tuesday next week as I have client events to attend Thursday and Friday while the markets will have a truncated session on Monday due to the Columbus Day holiday weekend.  In the meantime here are a few ETF charts for you to review and a few brief comments.    You can double-click on the charts to make them larger.  Charts are provided by FINVIZ.com.

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Major indices like the the Nasdaq 100 {QQQ} and the S&P 500 {SPY} have held up the best.  In fact they really have only started rolling over in the past week or so.  The process has been more pronounced the further you travel down the capitalization chain and the risk spectrum.  Josh Brown over at the "Reformed Broker" had a piece discussing this yesterday.  

Above is the chart of the iShares Russell Mid-cap index {IWR}.  It's sell off gathered energy in the past week and is now testing support.

 Above is the iShares Russell 2000 or small-cap index.  It has experienced a precipitous fall since the summer and is now testing even longer term support.

Here's a broader index of international markets.  It shows a sell off similar to the US mid-cap index.  

For me the jury is out on where we go from here.  US markets are at least growing, even if the rest of the world is sputtering a bit.  Hard to ignore the seasonal factors and their negative effect on stocks around this time of the year which we've discussed  ad nauseam  over the past few years.  We've been quiet in client accounts for the most part, having identified levels of rebalancing over the summer and been content to let our indicators guide us these past few weeks.  Like I said, I'll have more to say on this next week.  

One last thing.  In a post from June 26, 2014 that was titled "Time Off", I listed several things that could bother the markets going forward.  I listed these in the article:  The economy, Iraq, Immigration, the election cycle and interest rates.  I ended that article by saying this:

"Of course it's likely that the thing which will finally give markets a pause and even lead to some sort of a decline isn't even registering on any body's radar.  That's the way it is sometimes.  Nobody for example thought at the beginning of the summer in 1990 that Iraq would invade Kuwait.  Or it could be that stocks have already taken all this into account, discounted the outcomes and nothing will come of any of it.  We'll have to see." 

I'm hoping that Ebola isn't the great unknown that will wash over the gunnels, taking the market down with it.  I don't think this is a major economic concern right now, even as it is a humanitarian crisis in West Africa.  But this could have much greater implications should it spread beyond the region and begin to work its way into the developed parts of the world.  We're watching this even more closely now.

See you Tuesday.

*Note  we have exposure in one form or the other to most of what you see in these charts.  Note also that the distribution of these assets isn't uniform across all of our accounts due to different investment strategies and also note these positions can change at any time.