Technically Speaking For The Week Of March 4-8

Includes: IWM, QQQ, SPY
by: Hale Stewart

Although the jobs report was downright bad, the longer averages are still strong.

The ECB publicly acknowledged that the EU economy is weakening.

The markets are clearly in a correction.

Despite the weak jobs report, the 3, 6, and 12-month moving averages of establishment job gains are still clustered around 200,000: The 3, 6, and 12-month moving averages are 186,000, 190,000, and 209,000 respectively. That doesn't mean this report isn't concerning - in fact, it's the third weak report for a coincidental indicator released in the last month. However, the establishment job data can be very noisy, which is why I prefer moving averages, which smooth out the volatility.

The ECB announced additional stimulus measures due to weaker economic data. From the press conference on Thursday (emphasis added):

Euro area real GDP increased by 0.2%, quarter on quarter, in the fourth quarter of 2018, following growth of 0.1% in the third quarter. Incoming data have continued to be weak, in particular in the manufacturing sector, reflecting the slowdown in external demand compounded by some country and sector-specific factors. The impact of these factors is turning out to be somewhat longer-lasting, which suggests that the near-term growth outlook will be weaker than previously anticipated.

Central banks are notoriously circumspect with their public statements. When they do admit to weaker data, it's important to take notice.

The political heat is increasing on the large tech companies. Elizabeth Warren has proposed breaking up big tech companies (emphasis added).

The proposal — which comes on the same day Ms. Warren will hold a rally in Long Island City, the Queens neighborhood that was to be home to a major new Amazon campuscalls for the appointment of regulators who would “unwind tech mergers that illegally undermine competition,” as well as legislation that would prohibit platforms from both offering a marketplace for commerce and participating in that marketplace.

Ms. Warren’s plan would also force the rollback of some acquisitions by technological giants, the campaign said, including Facebook’s deals for WhatsApp and Instagram, Amazon’s addition of Whole Foods, and Google’s purchase of Waze. Companies would be barred from transferring or sharing users’ data with third parties. Dual entities, such as Amazon Marketplace and AmazonBasics, would be split apart.

The large tech companies have been in political hot water for the better part of two years. Expect proposals like this to continue. Whether they gain any traction is anybody's guess.

The markets were down solidly for the week. They were led lower by the micro-caps, which fell 4.65%. Small-caps were the next worst performers, dropping 4.22%. Mid-caps were off 3.33%. In contrast, Treasuries caught a safety bid with the TLT gaining 2.46% and the IEF rising 1.13%. Industry performance was decidedly defensive: utilities were the top performer, up .75%. Real estate was second best, gaining .16%. Healthcare was the worst performer, declining 3.8%. I think healthcare would have been a stronger performer if their executives were answering Congressional questions about high drug prices.

The charts are bearish. Let's start with the 5-minute SPY, which shows all the price action for the week: The best upward move occurred on Monday afternoon and lasted through Tuesday (although the pace of the increase was noticeably lower). For the rest of the week, prices moved lower. The overall trend for Wednesday through Friday was down with the market printing a series of lower lows and lower highs. The 200-minute EMA dropped for the last three days. The transports had a stronger move lower. Rather than move higher on Tuesday, they moved lower, with the pace of the decline accelerating later in the week. This trend - the transports leading the market lower - has been in place for most of this selloff.

In contrast, the Treasury market rallied for the entire week. Prices printed a series of higher lows and higher highs throughout the week.

Turning to the industry performance, the utility sector had the best performance for the week. And that's not saying much.

There's a very slight upward trend to the chart. But not much of one. And, as I mentioned, that's the best major industry chart for the week.

Let's turn to the daily chart to get an idea for levels going into next week:

Momentum is clearly moving lower. Prices have dropped through the 10 and 20-day EMA and are now targeting the 50-day EMA. The 200-day EMA is not much lower. Both are only a few points below current levels. Just as importantly, volatility (as measured by the low width of the Bollinger Bands) is still very low, which means that, so far, this is a disciplined selloff.

The markets have telegraphed this selloff for a few weeks. So far, it's nothing more than a standard profit-taking drop.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.