Economic data as a whole continues to disappoint, but what took center stage today was the heavy volume selling across the board. Kicking off the day was big merger news with Kraft and Heinz. CNBC was very happy to get Warren Buffett on the phone as Berkshire Hathaway played a major role in bringing the deal together. Despite the fanfare for the merger sellers would rule the day. It was non-stop and relentless selling. Today’s action was not what we wanted out of this market. While yesterday’s distribution was not bad what we saw today was something to note of. Biotechs were once again big casualties of the selling as well as beta. Adhere to your exit strategy and buckle up this ride could get bumpy.
Monday and Tuesday were decent pullback days and were looking much like consolidation. However, this market had a different plan. Today’s action created a “three crows” pattern. Typically, you will see a bounce out of this pattern, but it is a bearish pattern. We will need to see buyers jump in this market immediately. The fight will be over today’s low.
March has not been a kind month since the 2009 lows. From the Japanese Tsunami to Greece to last year’s bumpy ride this March is following the choppy action we have seen in the past. Not to mention since 2005 the two weeks prior to April 15th this market tends to head lower 70% of the time. Mind you the two weeks following April 15th the market is up 90% of the time. We are entering in a seasonal difficult period for the market and caution is certainly warranted.
Last year we saw Biotechs begin a bigger than a 30% correction into its 2014 low in April. We certainly are not predicting a similar correction, but it is not out of the realm of possibilities. Aside from IBB, XLU continued its push lower. TLT actually followed along with XLU as bonds failed to rally despite the selling in equities. The VIX jumped 13%, but still remains suppressed. We discussed VXX in the chat room today and is one way to hedge against potential volatility.
The best course of action is to be sure your risk management process is being adhered to. You could be carrying far too much risk in this market environment. If exit signals are triggered get out.
