S&P 500 Plunges to August Low on Global Growth Concern
Comment of the Day

October 07 2014

Commentary by David Fuller

S&P 500 Plunges to August Low on Global Growth Concern

U.S. stocks declined, with the Standard & Poor’s 500 Index slumping to an eight-week low, as the International Monetary Fund cut it growth forecast and warned of “frothy” equities amid signs of slowing growth inEurope.

The Russell 2000 Index of small companies retreated 1.7 percent, the most since July 31, to bring its loss since a March record to 11 percent. The Dow Jones Transportation Index plunged 2.5 percent today, capping a 3.6 percent drop in the past two days, the most since January. Auto stocks in theS&P 500 (SPX) sank 3.4 percent to lead losses among all 24 industries.

The S&P 500 sank 1.5 percent to 1,935.09 at 4 p.m. in New York, the lowest level since Aug. 12. Today’s slide was the biggest in almost three weeks. Selling accelerated in afternoon trading as index futures contracts expiring in December slipped below 1,940, a level where two previous declines had ended earlier today.

David Fuller's view

In recent weeks I have often described the Russell 2000 Index of smaller companies as the canary in the coalmine, and it has gone silent following this 11% drop since March.  It fell over 30% from a similar, albeit smaller, pattern in 2011, when the S&P 500 briefly exceeded a decline of 20%. 

So far, the S&P has only experienced mean reversion towards its MA, but the region of 1900 is technically significant in terms of the August reaction low and the 200-day (40 week) moving average. 

I discussed this in considerably more detail in my Markets Now PowerPoint presentation on Monday evening, which you can now see.  This morning I also recorded a detailed 54.17 minute Audio covering the presentation.  You will not have to listen to the whole Audio if you are only interested in the stock market comments, and the PowerPoint also contains a number of bullet points. 

In particular, you may wish to see the four graphs measuring leverage on Wall Street, which I found and posted over the weekend.  They add to the probability that we will now see the long absent 10%+ correction and quite possibly the biggest setback since 2011.  

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