Monday, January 19, 2015

Four Consecutive Weeks Down For Equity Market Not A Common Occurrence

Since the end of the financial crisis, or better yet, the market bottom in March 2009, weekly market declines for the S&P 500 Index lasting four consecutive weeks or longer have been a somewhat rare occurrence. The most recent string of four consecutive weekly declines occurred the week of September 22, 2014 through the week of October 13, 2014. Prior to this 2014 four week decline, the last string of four consecutive weekly declines occurred in 2011 (7/25/2011 - 8/15/2011). Since the beginning of 1990, the market has experienced a total of 22 time periods, out of 1,306 weeks, where the S&P 500 Index declined for four or more consecutive weeks.

Last week the market fell 1.24% and this was the third weekly decline for the S&P 500 Index. As the below chart shows, the technical set up for the weekly chart for the S&P 500 Index is suggestive of potential market weakness in the coming week with a negative MACD indicator and a negative stochastic indicator.

From The Blog of HORAN Capital Advisors

On a shorter daily time frame though, the S&P Index's technical indicators are suggestive of a market that is oversold. Both the MACD and stochastic indicators appear to be bottoming, but both remain negative. This oversold condition is supportive of a short term bounce in the market. For another view on market levels to watch, readers might want to check the article, Stock Market Checkup: Levels To Watch On Major Indices and An Intermittent Bottom perhaps, but Swing Bottom in Question. Additionally, Thursday and Friday saw the market find support at the 150 day moving average. However, the market will need to digest the ECB's likely bond buying announcement on Thursday the 22nd and the Greece election results on the 25th. Either one of these announcements alone could be unsettling for the equity market in the short run.

From The Blog of HORAN Capital Advisors

Longer term, we remain positive about potential equity market returns this year, yet increased volatility will likely be more the norm than the exception. Lower gas prices will act as a tax cut for consumers and this impact has a greater influence on economic growth than the negative effects experienced by energy companies. Assuming the ECB announces a bond buying program, their form of quantitative easing, the US Dollar is likely to continue strengthening. The stronger Dollar and lower interest rates outside the U.S. will make U.S equities an attractive investment for many foreign investors. This additional flow of funds into U.S. stocks will provide positive support for U.S. equities.

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