Morning Report Wednesday 7 May 2014
Tech-heavy NASDAQ is leading an equities correction.
I often say the NASDAQ leads the market; if that is the case this time, we have a decent correction approaching fast. The NASDAQ has corrected -8.7% since March and is now targeting a further -7.5% correction. This morning, a headline on Bloomberg caught my eye: "The Russell 2000 Index fell 1.6% closing below its 200 day moving average for the first time since 2012" (chart 1).
Cracks are appearing. The Russell 2000 Index is a smaller stock index, implying there is no break approaching fast for the already battered Australian small cap stocks. Combining the above and the weak seasonal period of May/June which is now upon us, I am comfortable being in cash waiting to buy a sell off. The U.S. economy probably contracted in the first quarter for the first time in three years and only the second time since the Great Recession ended in mid-2009, recent data suggests. Given the S&P has rallied so strongly, a 8-10% pullback would hardly register on the charts - see chart 3.
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