According to Ashraf Laidi:  The following sobering analysis on the S&P500 reinforces our expectations that recent record highs in US equity indices will not be revisited before at least six weeks.

A decline of at least 10% is expected to follow.

-        Last week’s 3.6% decline in the S&P500 single-handedly erased all of the prior seven weeks’ consecutive gains.

The last time the S&P500 erased at least three weeks’ of consecutive gains was the week after the October 2007 record. Stocks fell more than 50% thereafter and took six years to regain that high.

-        And for an unprecedented finding, last week’s S&P5 500 decline took place after SEVEN weekly consecutive gains, which had NEVER been seen before in the index.

Seven consecutive weekly gains have occurred in the past (Aug-Jul 1989, Aug-Sep 1993, Apr-May 1997, Feb-Mar 1998, Dec 2003-Jan 2004, Apr-May 2007, Mar-Apr 2009, Dec 2010-Jan 2011, Jan-Feb 2013), but never in any of those cases has the streak-breaking week fallen by more than 2.0%.

The fact that the magnitude of last week’s declines was nearly 4.0%, following as many as seven rising weeks, shows an unprecedented departure in sentiment from greed to fear.

Kos here.  I've been saying that yes, oil's plunge would affect our rally although CNBS CNBC was telling us no,  For those who like to point fingers at reasons "why", take your pick:

  • Year-end tax selling
  • Even JNK, a proxy for risk, is seeing heavy selling.
  • Strong dollar in a weak economy
  • Maybe this is the market........without the benefit QE.
  • Who wants to "buy" at these high levels, not me.
  • There's an over supply in crude oil and price is finally reverting to reflect that
  • It's not an oil correction, it's a bear market in commodities; period and oil finally joined the club.
  • Oil and gas names have begun to postpone projects (see massive drop in permits in Oct/Nov. to the right) and ALL of their suppliers will feel the pinch as a result which widens the number of stocks which are weak.
  • Sure the average American will have more $ in their pocket to spent at Christmas but that's a drop in the bucket compared to the cut in spending in the oil arena as they tighten their belts with low oil.
  • Risk of defaults from heavily-indebted oil names.  Just ask regional name $CFR
  • When the VIX for crude oil $CVX is closing on the highs, oil's drop isn't over.  Watch for a capitulation move.
  • Saudi Arabia announced they will not cut supply even if crude oil is at $40.
  • They would cut production if someone else does and if Putin were to cut, what would that do to his economy?  Russia's obviously not easily bullied.
  • Russia's central bank announced a rate hike which has sent the Ruble to lows not seen since 1998.  Can you say recession in Russian?  This of course has traders pressuring the central bank to intervene.
  • Don't expect demand to increase any time soon with much of the globe in recession or with weak economies.   This of course, barring any disruption in supply.
  • And just how many cars can people buy when they're taking jobs at minimum wage?
  • The Fed may raise rates mid-2015 however watch the 10 year ($TNX).  It will rise long before the Fed lifts a finger.
  • All commodity currencies are struggling.
  • China's economy is slower than we hoped for with still high property prices.

So what sector could "step up to the plate" and help lead the market higher..........when we're already stretched in valuation? 

I think financials will have their worries.  That's 16% of the S&P500 weighting - not going to rally.  Knock off Industrials thanks to crude. -10% and materials?  Another -3%.  How about Consumer Discretionary?  Poor $F was downgraded today by Deutsche Bank stating that with lower gas prices, consumers may be less apt to shell out cash for a new, more efficient auto, and well all know how TSLA has been falling.  Count them out.  Can technology, staples and healthcare give us a Santa Claus rally alone?  Hopefully there will be no downside surprise with the recent good retail sales numbers.

As volume dries up near the holidays, there tends to be no heavy selling but I'm not placing any bets on anything related to energy.  We shall have to see but it won't be easy.

There's enormous pressure on Russia at this juncture and the other slippery slope is for the to raise rates in 2015 after halting quantitative easing and not encourage deflation from persisting. 

Edited 4:35pm to update Sector Weightings graph.

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