NOTE: Every week or two I write a Client Note for my clients. For a limited time, I am allowing non-clients to sign up and receive it at the same time as my clients. 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.
Originally sent to clients Wednesday March 16.
The tsunami that hit Japan last Friday – including the damage done to a nuclear facility – is dominating markets this week. I pray that the worst is past and wish the Japanese people a speedy recovery.
All of the stock market’s 2011 gains have been wiped out. What took 34 trading days to build have been erased in 17:
Index 12/31/10 3/16/11 % Change
S&P 1257.64 1256.88 -0.06%
Dow 11,577.51 11,613.30 +0.31%
Nasdaq 2652.87 2616.82 -1.36%
Russell 783.65 781.90 -0.22%
In addition to worries about Japan’s nuclear facility, two major analyst downgrades played a role in today’s selloff. JPM Securities analyst Alex Guana downgraded Apple
from Buy to Hold based on a deceleration in data he tracks. Apple lost more than $15 (4.5%) on strong volume today. Bernstein analyst Tony Sacconaghi downgraded IBM
from Buy to Hold saying that the stock is “approaching fair value”. IBM lost $6 (3.8%) also on strong volume.
Both of these stocks are market leaders and have an outsized impact on their respective indexes. With a market cap over $300 billion, Apple leads the market-cap weighted Nasdaq. At $153, IBM leads the price-weighted Dow. In fact, IBM accounted for 45 of the Dow’s 242 point drop today (19% of the total).
Charts of both stocks show topping formations and about 10% downside before any real support at their 200 DMAs. A chart of the S&P 500 looks similar with room to run down to its 200 DMA rising towards 1200.
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