Why the Market is Down Today

"Everything seems to be going on sale today.  Are you buying?"

Why the Market is Down Today

• US Industrial Output fell at its fastest rate in more than 18 months in April as factory production slumped
• Walmart (WMT) and Kohl’s (KSS) both released earnings – both below analyst estimates – both blamed the weather on their miss

Reasons to Worry

• Fall in US Industrial output dampens hopes for a big jump in economic growth after a winter slowdown
• Markets are at or near all-time highs
  
• Momentum stocks have been hit hard (biotech/other healthcare, social media)
• China

1. Possible nationwide property bubble is on the point of bursting
   
2. So far this year, newly started construction projects fell over 22% compared with the same period last year
   
3. Retail sales growth has slowed
   
4. Much like the US real estate bubble, when prices stop rising (or in China’s case – now begin to fall), the effect can cause a snowball effect
   
5. Chinese real estate, when coupled with related industries such as cement, steel, and other construction materials makes up about 16% of GDP (real estate alone is 13% - roughly double the US share at the height of the bubble in 2007)
   
   

Reasons Not to Worry

• New applications for U.S. unemployment benefits hit a seven-year low last week while consumer prices recorded their largest increase in 10 months in April, pointing to a firmer economy
• Although the S&P 500 is currently holding at its 50-day moving average (it  barely dropped below it earlier today), you only need to be concerned if it drops below (and stays below) its 100-day moving average (1st point of support) and the 150-day moving average (2nd point of support) – see chart below

1-year chart of S&P 500 - note that index consistently holds at the 100-day moving average (green line), with one instance of dropping to the 150-day moving average (brown line)

• Also note in the above chart that the 50-day moving average provides absolutely no evidence of support or resistance over this 1-year period

Suggestions/Recommendations

• Keep in mind that markets have been mostly good the past 5-days and a steady increase throughout today may be likely
• Don’t buy yet, markets are just shy of all-time highs.  Start buying at the 100-day moving average point and continue buying until it drops to the 150-day moving average
• Don’t worry about the US industrial production data as it is very cyclical and manufacturers may simply be compensating for overproduction from 2013 – only worry about China