Moving averages, moving targets

March 26, 2015

It’s starting to get difficult to keep track of the reasons for big selloffs, especially when the bond market and stock market engage in an all-out barf-fest simultaneously. The markets remain in a vacuum. Major earnings don’t start for a few more weeks, and the key employment data isn’t out for another week as well. That has left a bit of a void, which investors are filling with concerns about the dollar (if it’s strengthening, it hurts earnings; if it’s weakening, it’s because of worries about the economy) and worries about the economy.

Wednesday’s figures on durable goods orders were sufficiently terrible that they can’t be discounted so easily (this has become something of a trend). With investors not really showing up for the day’s five-year auction, everyone tucked tail and ran. We’ll have to see if there’s more of the same for the seven-year note auction later in the day. Lately, foreign central bank buyers haven’t been showing up en masse for auctions as expected – Richard Leong lays it out in a story that notes a number of reasons for this, but their concerns about their own currencies is part of the issue. This could contribute to another decline in foreign central bank holdings – that data comes later in the day.

As for equities, the big move lower in the Nasdaq suggests that there are real concerns about valuation. The stronger dollar hurts results (PVH, which owns Calvin Klein, Tommy Hilfiger and a few other stylin’ types, said this directly), but a weaker dollar raises worries that the U.S. economy’s strength is receding, at least for now. Not that a mild pullback isn’t necessarily good for the soul – Jason Goepfert of notes that declines of this type have not necessarily been bearish in the near-term. s&p100DAY

The Nasdaq 100 is once again testing its 50-day moving average for what seems like the 300th time in the last 15 minutes; Dan Greenhaus of BTIG points out that the 100-day MA has been more useful as a support level lately, and a similar chart looking at the S&P 500 is helpful in this regard as well. The 50-day has been consistently violated since the summer – spending most of the fall below it, to say nothing of a good chunk of January as well. The 100-day, meanwhile, has been better as a signal for buying and selling.

Once the selloff abated last year, violations of the 100-day MA have been generally brief, with the last major period of time the S&P spent below that following the U.S. credit downgrade. Not that there aren’t reasons for stocks to sell off – but it seems there is a backstop.

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