Today, the major stock indexes are declining sharply lower in broad based fashion. Almost every leading industry group is under pressure. Recent sector ETF winners such as the Energy Select Sector SPDR ETF (XLE), SPDR S&P Retail ETF (XRT), Financial Select Sector SPDR ETF (XLF), Technology Select Sector SPDR ETF (XLK) and others are all trading down by more than 3.0% in the session. Basically, the baby is being thrown out with the bathwater today.
While the media will blame the rise in COVID-19 cases, the weekly jobless claims report and the FOMC statement as the main catalyst for today’s market sell-off it is really much more than that. Generally, after a major run up the market will need to have a profit taking session or even multiple profit taking sessions. On Monday, the S&P 500 Index surged into it’s February 25th resistance level. Traders should note that on February 25th, 2020 the SPDR S&P 500 ETF Trust (SPY) declined with 218.9 million shares traded. Basically, this is a major resistance level that will require a consolidation base or a pullback pattern in the SPY chart to get through that resistance area. Remember, there were a lot of investors and traders that have been holding the SPY at that level. They have been in pain for over 2 months until recently. These traders and investors that were holding long S&P 500 positions since February 25th, 2020 are now back to break-even and simply want to get out of pain. So they sell out of their shares and down the market goes.
It will be important to now watch the market pattern that forms over the next week or so. While today’s is ugly and broad based it is actually not unusual for this to happen. Many traders and investors that have recent gains are also looking for a reason to take profits. This makes for a perfect storm sell off today.