This article, published by MarketWatch.com today (Friday, December 11th), includes excerpts from our Wednesday December 9th report entitled Today’s Reversal Warns Of More Near Term Market Weakness. The S&P 500 has subsequently declined by 39.00 points or 2% in the past 2 days.
Asbury Research subscribers can access that report by logging into our Research Center.
This week’s steep losses in the S&P 500 can be blamed on a continued rout in oil and broader commodities. However, the storm had been brewing for weeks and pain is likely to continue.
Rapid deterioration in high-yield credit markets had been flashing warning for weeks. But apparently, alarming bells also were being sounded by a pair of the largest and most liquid stocks on the S&P 500, according to Asbury Research.
Apple Inc., the largest company by market capitalization has failed to break out from its sideways move this week. Similarly, Berkshire Hathaway’s stock fell below its support level.
“This failed bullish breakout indicates that investors have collectively and abruptly changed their mind on the direction of Apple over just the past few days, and is near term bearish for the price of the stock,” John Kosar, director of research at Asbury Research said.
Kosar, who closely follows the price of these two stocks as well as credit spreads and volatility, said this week’s declines in Apple and Berkshire signal more pain for the broader stock market.
“Apple and Berkshire are both very closely correlated with the S&P 500 and each other and when both trend lower, the stock market is bound to follow,” Kosar told MarketWatch.
Kosar said another warning sign is the CBOE Volatility Index—also known as the so-called fear index. Market weakness will persist if the VIX continues to trend higher, Kosar said in a note to clients Friday.
The VIX jumped 26% on Friday to 24.49, sharply above its 50-day moving average and its highest level since Sept. 30.