Five Recent Misses

On September 30, we noted three examples of economic reports that came in below expectations. The disappointing theme also helped contribute to Wednesday's selloff in equities. From The Wall Street Journal:

Traders said weaker-than-expected economic data in Europe and the U.S. contributed to the negative tone Wednesday. Trading was busy, with 8.1 billion shares changing hands, the fifth-highest for any session this year... Stocks started the session lower and the declines accelerated during the day, after reports on U.S. manufacturing and construction spending fell short of economists' forecasts.

We Will Learn Something Soon

The chart below shows the S&P 500's 100-day moving average has attracted buyers during recent bouts of weakness in stocks (see A & B). The action of buyers near points A and B speaks to their economic confidence. Will the recent string of disappointing economic reports prevent buyers from stepping up this time? One way to see if their buying conviction is waning is by watching Wednesday's low in stocks. In the examples near A and B, the intraday low made near the 100-day held in the following sessions. We will see what happens over the next few days. The S&P 500 level to watch is 1941.

Market Warnings

Has the observable evidence been helpful recently? Yes, as noted in the September 22 tweet below, the market has been waving yellow flags for some time.

A September 26 video also showed numerous concerns pointing to increasing odds of ongoing weakness in stocks.

Support Did Not Hold

On September 30, we showed the left version of the NYSE Composite Index below. The same chart as of October 1 (below right) shows buyers did not provide support for stocks as they had previously (see green and red arrows). Therefore, we reduced our equity exposure (SPY) and added to a now sizable stake in cash. If weakness continues, we may add to our more-conservative holdings before the end of the week. Our bond position (TLT) has gained 2.18% so far this week.

Investment Implications - The Weight Of The Evidence

Using the weight of the evidence involves taking numerous inputs into consideration. Therefore, it is not the end of the free world as we know it if the S&P 500 takes out Wednesday's low and fails to hold near its 100-day; it simply means the probability of further weakness will have increased a bit more.

Asia Weak

Around 7:30 pm ET Wednesday, the trend of economic/Fed concerns and equity weakness seemed to be ongoing. From Bloomberg:

Asian index futures slid with U.S. stocks as the yen and Treasuries rallied amid concern over weakness in the euro-area economy and the end of the Federal Reserve's stimulatory bond-buying program. Futures on Japan's Nikkei 225 Stock Average sank 1.4 percent in the Osaka pre-market.