February Flush: Stocks Pounded As Worst Month Since January 2016 Ends

The Dow Industrials lost a total of just more than 1000 points for the month of February, which, on the surface, may sound like a big deal, but, in reality, it amounts to merely a four percent loss.

In other words, if one had $100,000 at the start of the month, it would be only $96,000 at the end. Not much to worry about, right?

Maybe so, but this month-long fall, rise, and fall had a number of interesting characteristics, and the supporting (or non-supporting) data is suggesting that whatever has shaken markets is not yet over, especially when the losses on the final day of the month were the fourth largest of the month and the biggest since the 1000+ point washout on February 8.

The entire month was marked by voracious levels of volatility. Out of 19 trading days, 15 featured closes more than 150 points higher or lower than in the previous session. Breadth continues to erode; Wednesday's advance-decline line showed losers outpacing gainers by a 5:2 margin. New 52-week lows are beginning to pile up while new highs are on the wane.

Economic data hasn't been very encouraging. Today's second revision of 4th quarter 2017 GDP came in at 2.5%, slightly lower than the 2.6% reported in January. New and existing home sales have slumped for two consecutive months, and today's Chicago's PMI reading of 61.9, was a six-month low, down from 65.7 in January.

Inflation appears to be picking up steam in some areas, slipping in others, and bond yields remain elevated in the near term. With the Fed set to raise the federal funds rate in March, there's little to make the case for a sustained continuation of the aging bull market, now approaching nine years since the Great Financial Crisis.

Wednesday's losses left the Dow down 4.6% from it's January all-time highs. It's not exactly a huge obstacle to overcome, but it's beginning to look more like a mountain than a molehill.

Dow Jones Industrial Average February Scorecard:

Date	Close	Gain/Loss	Cum. G/L
2/1/18	26,186.71	+37.32	+37.32
2/2/18	25,520.96	-665.75	-628.43
2/5/18	24,345.75	-1,175.21	-1,803.64
2/6/18	24,912.77	+567.02	-1,236.62
2/7/18	24,893.35	-19.42	-1,256.04
2/8/18	23,860.46	-1,032.89	-2288.93
2/9/18	24,190.90	+330.44	-1958.49
2/12/18	24,601.27	+410.37	-1548.12
2/13/18	24,640.45	+39.18	-1508.94
2/14/18	24,893.49	+253.04	-1255.90
2/15/18	25,200.37	+306.88	-949.02
2/16/18	25,219.38	+19.01	-930.01
2/20/18	24,964.75	-254.63	-1184.64
2/21/18	24,797.78	-166.97	-1351.61
2/22/18	24,962.48	+164.70	-1186.91
2/23/18	25,309.99	+347.51	-839.40
2/26/18	25,709.27	+399.28	-440.12
2/27/18	25,410.03	-299.24	-739.36
2/28/18	25,029.20	-380.83	-1120.19

At the Close, Wednesday, February 28, 2018:
Dow Jones Industrial Average: 25,029.20, -380.83 (-1.50%)
NASDAQ: 7,273.01, -57.35 (-0.78%)
S&P 500: 2,713.83, -30.45 (-1.11%)
NYSE Composite: 12,657.31, -161.91 (-1.26%)

Markets Get Spooked By Bullish Fed Chairman Jerome Powell

Stocks posted their biggest daily percentage losses since February 8 after comments by newly-appointed Fed Chairman Jerome Powell before the U.S. House of Representatives’ Financial Services Committee sent the major indices into a tailspin.

In his first congressional visit since replacing Janet Yellen, Powell's upbeat commentary on the health of the economy was taken by some to indicate that he may be in favor of four rate hikes this year, instead of the three already anticipated by the Street.

The key phrase from the new Chairman was, "my personal outlook for the economy has strengthened since December," which analysts thought to be a little too optimistic, which in turn could prompt the Fed to raise interest rates at a faster pace than previously thought.

With algos and ETFs fine-tuned to turn on every headline, Tuesday's downside move is largely the result of a market two-closely intertwined and concerned over daily news rather than as a discounting mechanism for future earnings. The current contract of markets - and its computer-driven near-instantaneous reactions - can cause sudden directional movement, just as it kept the lid on volatility over the previous nine years of seeming tranquility in a low-interest rate environment.

Nowadays, everything moves at once, like a stampeding herd, rather than taking a slower, cautionary, individual stock approach. Today's action also reinforced the notion that good news was bad, as the narrative that an improving economy may set the stage for quicker interest rate rises. The 10-year-note ended the day yielding 2.91%, not an alarming number, but one which is near the recent high end of the benchmark gauge.

Powell speaks before the Senate Banking Committee on Thursday, completing his mandated annual addresses to congress. After today's fandango, it's very likely that the Fed Chairman could backtrack a little, calming fears and sending stocks higher on the final day of trading for the month. It should be worth noting how Chairman Powell reacts and whether he plays to the market or remains true to his predetermined outlook.

Stocks would have to stage a monumental rally to finish February on the plus side. The Dow is down nearly 740 points since January 31.

Dow Jones Industrial Average February Scorecard:

Date	Close	Gain/Loss	Cum. G/L
2/1/18	26,186.71	+37.32	+37.32
2/2/18	25,520.96	-665.75	-628.43
2/5/18	24,345.75	-1,175.21	-1,803.64
2/6/18	24,912.77	+567.02	-1,236.62
2/7/18	24,893.35	-19.42	-1,256.04
2/8/18	23,860.46	-1,032.89	-2288.93
2/9/18	24,190.90	+330.44	-1958.49
2/12/18	24,601.27	+410.37	-1548.12
2/13/18	24,640.45	+39.18	-1508.94
2/14/18	24,893.49	+253.04	-1255.90
2/15/18	25,200.37	+306.88	-949.02
2/16/18	25,219.38	+19.01	-930.01
2/20/18	24,964.75	-254.63	-1184.64
2/21/18	24,797.78	-166.97	-1351.61
2/22/18	24,962.48	+164.70	-1186.91
2/23/18	25,309.99	+347.51	-839.40
2/26/18	25,709.27	+399.28	-440.12
2/27/18	25,410.03	-299.24	-739.36

At the Close, Tuesday, February 27, 2018:
Dow Jones Industrial Average: 25,410.03, -299.24 (-1.16%)
NASDAQ: 7,330.35, -91.11 (-1.23%)
S&P 500: 2,744.28, -35.32 (-1.27%)
NYSE Composite: 12,819.22, -180.40 (-1.39%)

Home Sales and Stocks Are Diverging?

Stocks staged an incredible rally on Monday set against a backdrop of the second straight monthly decline in both new and existing home sales.

Existing home sales for January were reported last Wednesday; new home sales came out on Monday morning and were far from encouraging, showing a January decline of 7.8% after December's 9.3% drop.

With a shrug, stock investors ignored yet another sign that the general economy is not operating at optimal efficiency. Apparently, the mindset is such that owning stocks is a better investment than owning a place to live. Maybe when Americans are all renters, they will be encouraged to buy even more stocks, to balance things out, so to speak.

Wall Street may have a mind of its own, though it appears that mind is being led by some very false rhetoric about the strength of the US - and global - economy.

Monday's big gains puts the Dow in position to erase all of the losses from earlier in the month. The NASDAQ is already back above where it began the month.

Dow Jones Industrial Average February Scorecard:

Date	Close	Gain/Loss	Cum. G/L
2/1/18	26,186.71	+37.32	+37.32
2/2/18	25,520.96	-665.75	-628.43
2/5/18	24,345.75	-1,175.21	-1,803.64
2/6/18	24,912.77	+567.02	-1,236.62
2/7/18	24,893.35	-19.42	-1,256.04
2/8/18	23,860.46	-1,032.89	-2288.93
2/9/18	24,190.90	+330.44	-1958.49
2/12/18	24,601.27	+410.37	-1548.12
2/13/18	24,640.45	+39.18	-1508.94
2/14/18	24,893.49	+253.04	-1255.90
2/15/18	25,200.37	+306.88	-949.02
2/16/18	25,219.38	+19.01	-930.01
2/20/18	24,964.75	-254.63	-1184.64
2/21/18	24,797.78	-166.97	-1351.61
2/22/18	24,962.48	+164.70	-1186.91
2/23/18	25,309.99	+347.51	-839.40
2/26/18	25,709.27	+399.28	-440.12

At the Close, Monday, January 26, 2018:
Dow Jones Industrial Average: 25,709.27, +399.28 (+1.58%)
NASDAQ: 7,421.46, +84.07 (+1.15%)
S&P 500: 2,779.60, +32.30 (+1.18%)
NYSE Composite: 12,999.62, +115.51 (+0.90%)

Stocks Stage Strong Rebound To Finish Week Green

While volatility has subsided for the time being, so also has volume, down significantly since the crash-like VIX episode at the beginning of the month. Some may be taking the view that gains on the Dow and other indices are positive, regardless of volume, but the number of shares bought since the early February wash-out are far below those sold during that earlier episode.

Market breadth - gainers versus losers - along with a track of new highs and lows - will continue to help determine short-term direction in the market. Friday's positive close brought the Dow back beyond the 50% Fibonacci retracement though gains for the week were rather modest.

Interest rates remain elevated as compared to a month ago and a year ago, and bond yields will also go a long way toward determining trader conviction. The Dow is the index to watch most closely, because all of the stocks comprising the industrial average pay dividends, some of them at or better than current 10-year treasury yields.

The confounding factor of rising rates and falling stock prices is that dividend yields actually rise in the short term, but that may be seen as a false hope indicator. If companies are not only losing value to stockholders, the real possibility of declining earnings could also erupt into slashing of dividends as companies scramble to horde or save cash.

Considering the massive size of stock repurchases in recent years, the scenario exists that companies could find themselves in a real bind, forced to sell shares back to the public at lower prices than at which they were repurchased, causing an erosion in earnings and a potentially vicious negative feedback loop.

The most savvy investors will be looking for companies which have repurchased inordinate amounts of their own shares and are therefore exposed to a wicked downward price spiral.

If bond yields stabilize at or near current levels (below three percent on the 10-year-note) such a condition will not appear, but stabilizing yields in an environment in which the Fed has telegraphed its intention to raise the federal funds rate and sell (form $20 to $60 billion a month this year) into the market at the same time should - in an ideal, actual free market - cause yields to continue climbing.

Stocks may be nearing a dangerous Rubicon, whereas buyers of bonds should experience bargain prices and healthier yields going forward.

Dow Jones Industrial Average February Scorecard:

Date	Close	Gain/Loss	Cum. G/L
2/1/18	26,186.71	+37.32	+37.32
2/2/18	25,520.96	-665.75	-628.43
2/5/18	24,345.75	-1,175.21	-1,803.64
2/6/18	24,912.77	+567.02	-1,236.62
2/7/18	24,893.35	-19.42	-1,256.04
2/8/18	23,860.46	-1,032.89	-2288.93
2/9/18	24,190.90	+330.44	-1958.49
2/12/18	24,601.27	+410.37	-1548.12
2/13/18	24,640.45	+39.18	-1508.94
2/14/18	24,893.49	+253.04	-1255.90
2/15/18	25,200.37	+306.88	-949.02
2/16/18	25,219.38	+19.01	-930.01
2/20/18	24,964.75	-254.63	-1184.64
2/21/18	24,797.78	-166.97	-1351.61
2/22/18	24,962.48	+164.70	-1186.91
2/23/18	25,309.99	+347.51	-839.40

At the Close, Friday, February 23, 2018:
Dow Jones Industrial Average: 25,309.99, +347.51 (+1.39%)
NASDAQ: 7,337.39, +127.31, (+1.77%)
S&P 500: 2,747.30, +43.34 (+1.60%)
NYSE Composite: 12,884.11, +172.36 (+1.36%)

For the Week:
Dow: +90.61 (+0.36%)
NASDAQ: +97.93 (+1.35%)
S&P 500: +15.08 (+0.55%)
NYSE Composite: +9.75 (+0.08%)

Rally Fails As Bear Market Chart Patterns Emerge

One of the clearest chart indicators of bear markets is the "higher open, lower close" condition, which has been showing up in the daily charts on a regular basis of late.

Thursday was another in a steady stream of such charts, with the Dow higher by nearly 360 points by midday, only to lose more than half of the gains by the closing bell.

Another pattern - more often indicating broken or tired markets - is split decisions, wherein the major averages diverge as discretion becomes more prevalent. The NASDAQ, which extended its losing streak to four days on Thursday, ended the session in the red while the other indices were up.

These recurring patterns are worth noting at this juncture, though not entirely indicative of overall market direction. In general, however, the decline which began at the beginning of February has not been surmounted and continues to hold stocks below recent highs, a condition which will resolve itself at some point in the near term.

Timing markets such as this one would be a heady task, and probably result in more pain than necessary. It is likely that investors are already taking positions and executing them prior to any definitive directional signal, making the case that bearishness may already hold a winning position over the long-standing bull market proponents.

Time will tell.

Dow Jones Industrial Average February Scorecard:

Date	Close	Gain/Loss	Cum. G/L
2/1/18	26,186.71	+37.32	+37.32
2/2/18	25,520.96	-665.75	-628.43
2/5/18	24,345.75	-1,175.21	-1,803.64
2/6/18	24,912.77	+567.02	-1,236.62
2/7/18	24,893.35	-19.42	-1,256.04
2/8/18	23,860.46	-1,032.89	-2288.93
2/9/18	24,190.90	+330.44	-1958.49
2/12/18	24,601.27	+410.37	-1548.12
2/13/18	24,640.45	+39.18	-1508.94
2/14/18	24,893.49	+253.04	-1255.90
2/15/18	25,200.37	+306.88	-949.02
2/16/18	25,219.38	+19.01	-930.01
2/20/18	24,964.75	-254.63	-1184.64
2/21/18	24,797.78	-166.97	-1351.61
2/22/18	24,962.48	+164.70	-1186.91

At the Close, Thursday, February 22, 2018:
Dow Jones Industrial Average: 24,962.48, +164.70 (+0.66%)
NASDAQ: 7,210.09, -8.14 (-0.11%)
S&P 500: 2,703.96, +2.63 (+0.10%)
NYSE Composite: 12,711.75, +16.22 (+0.13%)