Well, after a month of expecting, and waiting for, a significant correction in stocks, we got what may be the beginnings of one on options expiration Friday. The weakness actually started on Thursday, as the market seemed not to like Google’s very strong earnings report. The big news that grabbed everyone’s attention was the fraud charges leveled at Goldman by the SEC, but this wouldn’t have had much to do with the selloff.
While Goldman shares fell more than 12% Friday, the financials ETF (ticker: XLF) was only down 3.6%, albeit on heavy volume, while the broader S&P 500 lost a mere 1.6%, again on the heaviest volume since early February. Financials have led the market down as well as up over the past couple of years, so this can’t be ignored. The NYSE and NASDAQ had 92% and 83% down volume days, respectively. The selloff in leading Chinese stocks was sharper than for US shares, with the FXI down 3.6% on the day and over 5% for the week.
US issuer bond prices were up across the maturity curve and issuer classes last week, while most commodities were lower, with West Texas crude closing just under $85. The commodity currencies followed that move down (Loonie, Aussie), Euro and Sterling stabilized, and the Greenback was flat, while the Yen was the winner among major currencies.
The uptrend in most stocks and the major averages remains intact, and the very short term overbought conditions were relieved, but the intermediate term picture remains overbought and weak on a price & volume basis. Monday and the rest of the week should be interesting. No reason to make any major portfolio moves just now, but if I were more heavily allocated to stocks, I would look at playing a little defense here.