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Market Outlook: Market Gets a Root Canal

February 6, 2016

By Keith Schneider


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US Equity markets ended the week poorly to say the least. Depending on which index you choose, equity markets were down between -3 to -6% this week, with NASDQ 100 leading the drop, putting it down almost 12% YTD.

The fabulous FANG trade (FB, AMZN, NFLX and GOOG) which had everyone talking as how it’s the only place to be, had three painful extractions with AMZN down almost 30% from its highs. Those highs were made just 35 days or so ago in late December 2015. Facebook is hanging on after blowout earnings but has now developed a nasty cavity requiring a root canal, and off 12 % from post earnings highs. In essence, one fang is left in the jaw of the once mighty NASDQ beast.  This is a good reminder that what worked last year or yesterday might be toast today and this is a “take no prisoner “market.

Barbie (MAT) is now the leading NASDQ 100 stock and I leave it to you for the takeaway from that factoid.  LinkedIn (LNKD) dropped out to the tune of 43% after lousy earnings which helped hammer the market psyche as well. After all, if the business version of Facebook is bleak, what does that portend for the general economy?

Most noteworthy is that Gold and Gold Miners, Silver and the Euro all rallied sharply. The past several years Gold only managed to meekly pick up its head during equity market turbulence. That has clearly shifted. Battered Gold Miners are already up 25% YTD.

The safe haven dollar also got hammered this week and suffered its biggest one day decline in almost 7 years.

Money has nowhere to go, and Friday’s market rout with the flight into the yellow relic just highlights the limited alternatives. Just a few weeks ago I was getting E-mails predicting $600 gold, which with gold now sitting at almost $1200 would require the equivalent of sawing a gold brick in half and tossing it out. Not very likely.

Although Gold is certainly running rich up here, those with memories of the 1970’s gold rush and the Hunt corner of silver know that in a panic, the $150 dollar run up in Gold may just be the start of something much bigger, especially if equity markets continue in its current trajectory.

The market wisdom that nothing goes straight up or down is generally true except every once in awhile when it‘s not. Odds are higher that we could be in one of those periods.

This is where some old fashioned tape reading comes in handy so let’s go this week’s video and see some key inflection points.