Market Follows Declining Volume

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Equity indexes took another hit on Thursday and ended lower across the board. Sellers were in control and buyers were nowhere to be found as most earnings reports failed to impress and the latest round of manufacturing data left disappointment.

The Dow Jones industrial average slid 0.56 percent while the Standard & Poor’s 500 Index dropped 0.67 percent, to finish at its lowest in six weeks. Seven of the 10 main S&P 500 industries declined today as technology, health-care and consumer-discretionary companies fell the most, sinking at least 1.1 percent.

Manufacturing activity in the mid-Atlantic region, the area covering eastern Pennsylvania, southern New Jersey and Delaware, softened in April, sending the Philadelphia Fed’s monthly manufacturing survey lower to 1.3 from 2 the prior month. Economists had projected a 3.0 gain.

In a separate report, weekly jobless claims rose to 352,000 last week, above expectations for 347,000. The index of U.S. leading indicators unexpectedly declined in March, adding to evidence the economy will cool. While the world’s largest economy is losing some momentum from the effects of a payroll tax increase and concern over federal budget cuts, consumers, globally, are retrenching as well.

Retail sales in the U.K. fell more than forecast in March as cold weather depressed purchases of clothing and household goods. In China, a deadly bird-flu outbreak is rippling through industries from restaurants to travel, adding to headwinds after the world’s second-largest economy unexpectedly slowed last quarter.

Boosting global growth will be the main topic of discussion this week in Washington at the Group of 20 advanced and emerging economies.

Earnings season is in full force. According to Bloomberg, out of 82 companies in the S&P500 index that have reported earnings since the season began, 74 percent have beaten analysts’ estimates for profit and 49 percent have exceeded sales forecasts.

However, the index has dropped 3.3 percent since reaching an all- time high of 1,593.37 on April 11. Key sectors and companies reported disappointed revenue growth. Banking and technology are two leading industries that contributed to the slump. We have been seeing a strong pull-back the last few days. Is this proving the market is overvalued?

As I have posted many times, if you look at the major market indexes levels and the underlying economy, you have to say that they are out of whack. Adding the fact that the indexes are only at the current levels thanks to the Fed’s open ended QE, yes, you certainly have to consider the markets to be overvalued.

That means, either the economy picks up steam to justify the higher levels or the indexes eventually will have to take a dive and align with true economic fundamentals. If I had to take a pick, I’d choose the latter as the most likely to happen.

Our Trend Tracking Indexes (TTIs) retreated with the Domestic TTI ending the day at +2.43% while the International TTI closed at +5.12%.

For the latest charts and momentum numbers, please review the current StatSheet, which I will post within a couple of hours.

About Ulli Niemann

Ulli Niemann is the publisher of "The ETF Bully" and is a Registered Investment Advisor. Learn more
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