NOTE: Every week I write a Client Note for my clients. For a limited time, I am allowing non-clients to sign up and receive the Client Note. You can sign up at the top right hand corner of the website. I will also be posting the notes on my blog with a time delay from time to time. Here is this week’s.
Amid the tumult, what is so clear today is the hatred felt for the ruler and his immediate family. Reigns like Mr. Mubarak’s devour the green and the dry, as a favored Arab expression has it.
The Middle East story has grabbed people. The worry is that tensions are going to spread and that there are going to be more uprisings and issues in the Middle East.
Were demonstrations to spread in a big way to Jordan and Saudi Arabia, a catastrophe could be looming. A more enlightened, pro-American regime than the one now in Jordan is hard to imagine. As for the Saudi royal family, it is probably the worst possible form of government for that country except for any other that might credibly replace it. Imagine all that weaponry the United States has sold the Saudis over the decades falling into the hands of Wahhabi radicals.
I’ve been bullish for a while. To get me to stop and pause, it took a riot.
– Lee Munson, Chief Investment Officer, Portfolio LLC, who moved money into cash after months of being bullish on stocks, quoted in “Dow Declines 166 On Egypt Unrest”
, The Wall Street Journal
, January 29
Friday was an important day. It looks to have put an end to the relentless rally that began on December 1, 2010 and carried the S&P 500 up 10% over 8 1/2 weeks from 1180 to 1300. From Wednesday December 1st through Thursday January 29th, only 12 of the 40 tradings days were down days for the S&P. The catalyst was the protests in Egypt but an overbought and overbullish market was ripe for a correction.
In Egypt, a coalition of opposition forces is determined to end the 30-year regime of President Hosni Mubarak. Opposition leader Mohamed ElBaradei told Reuters: “The Mubarak regime must leave.” Following Egypt, opposition protests are simmering across the Middle East.
Friday’s selloff was technically powerful. The S&P lost 23 points (1.77%) erasing about half of the year-to-date gains. NYSE Composite volume of 5.7 billion shares was the heaviest in months.* More than 90% of the floor volume was on a downtick.
After such a good rally, I doubt one down day has exhausted the selling pressure. I would expect to see more selling early this week. The S&P’s 50-Day Moving Average acted as support during the November selloff. At about 1250, it seems a likely short term target.
* NYSE Composite volume was 7.5 billion on Tuesday December 7th, but 3.2 billion of that was Citi.
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