S&P 500 Matches February Closing Low With Monday Decline

Big Sell-off On Monday

There was a sharp decline on Monday in which the S&P 500 fell 2.23% and the Nasdaq fell 2.74%. The VIX was up 18.28% to 23.62. The S&P 500 fell to 2,554 in the afternoon before rallying a bit near the end of the trading session. It closed about 1 point above the February low. The market is precariously close to breaking out of its recent range to the downside. If it does, I only expect a few percentage points of downside since I’m sticking with my original prediction to start the year which was a 10%-15% correction.

This decline broke a 643 day streak where the S&P 500 was above the 200 day moving average. This was the 2nd longest streak since at least 2000. Some think breaking this streak was bad news, but I disagree. The plethora of record positive streaks in January were negative signals for stocks as they indicated euphoria. January 2018 will mark a pivotal point in market history because it will be known as peak optimism.

This doesn’t mean stocks are destined for failure. It means the fundamentals will become more important. Unless you think a recession is coming, it makes sense to buy into corrections. This strategy has burned some in the near term because they have been used to 3% declines. An average year has one 13% decline. I think it’s great that the stock market is getting rid of the euphoria without a recession. If a recession was to start in 2018 the total declines could get ugly as the euphoria became panic.

Tech & Momentum Continue Falling On Monday

The tech and momentum stocks have led the market down in the past few days. As you can see from the chart below, the momentum factor fell about 4% on Monday. Intel stock led the charge to the downside because Apple was reported to be ditching Intel chips in its Macs by 2020. Intel isn’t a momentum name, but it did hurt the tech sector. Netflix is one of the few momentum names in the FAANG group without bad news coming out about it, yet its stock was down 5.1% on Monday and it’s down 15.54% from March 9th. Nvidia stock was down 4.55% because analysts lowered their price targets because the cryptocurrency crash will mean fewer chip sales.