A Fifth Consecutive Week of Declines
The conflict in Iran continues to dominate market sentiment. Reports of a U.S. ceasefire on Iranian energy infrastructure and ongoing peace talks helped lower oil prices and boost equity and bond markets at the start of last week. However, this optimism proved fleeting as subsequent headlines indicated that the U.S., Israel, and Iran remain far apart on the terms of any agreement.
The U.S. stock market’s positive Monday momentum failed to hold, and sell-offs on Thursday and Friday left the major indexes down overall for the fifth week in a row. The Nasdaq dropped 3.2% and the S&P 500 fell 2.1%.
Nasdaq Enters Correction Territory
The Nasdaq officially entered a correction on Thursday, closing more than 10% below its record high set about five months earlier. The S&P 500 slipped closer to the 10% correction threshold, ending the week 8.7% below the record level it achieved in late January.
Similarly, rallies in some of the best performing parts of the market this year, including emerging market equities, international equities, and small-cap stocks, have been partly or fully reversed.
Small Caps and Energy Buck the Trend
A U.S. small-cap benchmark outperformed larger-cap counterparts by a wide margin last week, with the Russell 2000 Index finishing 0.5% higher and expanding smaller stocks’ year-to-date margin of outperformance.
The recent surge in oil and natural gas prices continued to provide lift for energy stocks. The S&P 500’s energy sector finished up more than 6% for the week. Since March 1, energy has gained nearly 13%, making it the only sector in positive territory over that time frame. Year to date, the sector has added 41%.
Volatility Remains Elevated
Markets will likely remain sensitive to news over the conflict in the Middle East in coming days and weeks, which could keep volatility elevated in the short term. I’m keeping a close eye on the CBOE Volatility Index, which closed above 31, suggesting higher investor concern and higher volatility expectations.
My Technical Read: Oversold but Technically Damaged
Technically, we are near-term oversold, but there has also been some technical damage as several key support levels were violated last week. This is not a market to take lightly.
Key S&P 500 technical levels to watch: Support near 6,350, 6,200-12, and 5,950-6,000. Resistance exists at 6,450-75, 6,570-75, 6,650, and 6,750-55.
In any case, as we always do at TheTechTrader.com, we will “Trade What We See, Not What We Think.”
— HARRY BOXER, THE TECHNICAL TRADER | www.thetechtrader.com
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