The strong selling in equities that started late-last week carried over today. The sharp selling resumed today as news of the coronavirus spreading to other countries (i.e., South Korea, Iran, Italy, etc.) and concerns that some countries (i.e., Japan, Germany, Hong Kong, Singapore, etc.) may slip into economic recessions if the coronavirus outbreak accelerates further. Dow Jones Industrial Average fell -1,031.61 points or -3.56%, NASDAQ Composite declined -355.31 points or -3,71%, and S&P 500 Index drop -111.86 points or -3.35%. Gold traded to 7-year highs, US Treasury yields (TNX – 1.38%) is approaching its historical lows.
So, what are the market internals telling us about this recent market sell-off?
(1) Advancing issues minus declining issues for SPX and other key indexes have deteriorated over the past week. I think is too early to determine if this is the start of a sustainable negative divergence between price and market breath that are typical of a major market top.
(2) The strong selling at the opening created a very large bearish gap down (SPX – 3,259.81 and 3,328.45). In fact, the -68.64-point gap down is one of the biggest gap-down day and -111.86-point or -3.35% decline is one the largest single day sell-off in the past two years.
(3) Although volume expanded today into the close and is larger than last week’s selling volume it does not appear to be capitulation or panic selling volume.
(4) The fear indicator, VIX Index, finally broke out above its 2018 downtrend (23). However, VIX is now approaching crucial intermediate-term resistance along the mid-to-high 20s (Mar 2018, Oct 2018, and Aug 2019 highs).
Remember, this week coincides with the end of the month (2/28/20) and as such monthly portfolio adjustments are likely to create very volatile conditions into Friday. It may be difficult to ascertain if this is real buying/real selling or monthly portfolio strategies being implemented by professional traders and investors.
We will closely monitor the market conditions into the end of the week/month and will analyze in detail the weekly and monthly closing prices to determine if this is another correction within the confines of the primary uptrend or if this is a major market top and the beginning of a bear decline.
Enclosed below are intra-day, daily, weekly, and monthly charts of S&P 500 Index (SPX) accompanied by key technical levels for the respective timeframes.