"One thorn of experience is worth a whole wilderness of warning."
--James Russell Lowell
Although the senior indices posted gains once again, the action on Thursday may have been the weakest we have seen so far in 2017. In view of the one-way nature of the action, the bar is set very low, but it was one of those days where the underlying action raised some concerns.
The main problem yesterday occurred in higher momentum individual stocks that have been leading the market recently. Infrastructure-related stocks such as the steel sector where one problem. U.S. Steel (X) and Cliffs Natural Resources (CLF) , for example, stumbled badly and cement maker Eagle Materials (EXP) was hit hard on some unconfirmed rumors that President Trump's infrastructure plan would be delayed until 2018.
An additional problem was that the market failed to find much comfort in remarks by new Treasury Secretary, Steve Mnuchin, about plans for tax and fiscal policy. The market has consistently rallied on talk about tax reform, but exhibited some skepticism this time as the reality of moving a bill through Congress is more fully appreciated.
The third factor that hurt the market was that a number of leading momentum stocks are struggling. NVIDIA Corporation (NVDA) , for example, has been a leader for well over a year. Yesterday the stock broke under its 50-day simple moving average for the first time since early 2016. There was trouble in the optical sector as well and China names like Weibo (WB) and Momo (MOMO) fell sharply.
Considering how strong the market has been since the election, a stumble like this isn't particularly surprising or significant. It is probably a positive, rather than a negative that there is some consolidation and profit taking. Many names have made parabolic moves, and that simply is not sustainable.
The reason this poorer action is notable is that we need to watch closely to see if it develops further. Many bears have been extremely anxious to call a market top and this action gives their arguments a little additional weight. As the cliché goes, tops are a process, and now there is at least the start of a process. It may not develop into anything further but it deserves our attention and should prepare us to act more defensively very quickly if it continues.
The indices are still uptrending and have not suffered any technical action of note but many individual stocks are showing signs of stress. I was forced to cut some positions yesterday and have raised my cash holdings sharply due to my trading discipline. Quite often the market will shrug off action like this and regain its footing but forewarned is forearmed.
We have some early softness as overseas market act poorly. Oil is down and precious metals are attracting buying interest.