We earlier noted that the tech heavy US100 had experienced some strong selling that was largely unexplained late on in Friday’s session and there’s been some more notable weakness today. Just over half an hour since the Wall Street open and the US100 is lower by around 1.2%. Whilst this contract was lower heading into the cash open there’s been a significant pick up in the selling pressure since the opening bell and the market has tumbled below Friday’s low.
The price action in recent months could be considered something of a warning sign given how far the market has rallied since Trump’s election – approximately 30% before Friday’s drop. The US100 was actually something of a laggard in the days that followed the election with industrial and banking stocks on the US30 the early winners from Trump’s victory. However since his inauguration the US100 has been outperforming the US30 by a ratio of around 2:1.
The greatest concern from the price action comes the size of the declines relative to the rises. Whilst far more rare the declines are substantially bigger on average which gives the impression that when the market starts to drop there’s a rush for the exit door. As an example of this the last two days of trade have engulfed the prior 14 sessions. Another example of this is that Friday’s session saw the market print an intra day all time high whilst now price sits less than a percent from the 50 day SMA (yellow line).
Several of the well known stocks are amongst the decliners with the FAANG leading the way. Tesla is another stock which has seen a near parabolic rise so far this year but some strong selling on Friday. The stock made an all time high of 376 before reversing lower with a large bearish engulfing candlestick.
Whilst there’s lots to suggest that these markets remain in uptrends from several technical trend identification techniques these are the sort of warning signs which will be cited should a substantial decline occur. It’s still early days for these stocks but if there’s continued downside in the coming sessions then fears of a correction will no doubt rise.