Alibaba Hangover?

The stock market has been acting oddly of late.  The strange feeling is that it has been very volatile ever since the S&P 500 hit a record high on September 19 — the day of the Alibaba Group  IPO.

Since then, it really hasn’t responded all that favorably to good news.  Market breadth has narrowed, former leadership stocks have come under increased selling pressure, the 50-day moving average for the S&P 500 has been violated on the downside, and there has been a stronger inclination to sell into strength rather than buy into weakness.

A lot of explanations have been put forth to help explain this temperamental side of the market that hasn’t been seen often this year.  No single explanation really suffices, which has been part of the problem as it has created an air of uncertainty that has led to stepped-up selling interest.

Accordingly, it doesn’t take much right now to get the stock market worked up, which is what we saw Monday in the overreaction to the protest news out of Hong Kong.

Not to be overlooked in the midst of everything is that we are at the end of a quarter that, until recently, was a very good quarter.

What has taken place the last few weeks, then, could very well be a case of portfolio rebalancing that involves dialing back some equity exposure as global economic data points to signs of weakening activity and the US dollar continues to strengthen in a trade buttressed by interest rate differentials and safe-haven appeal.

The strength of the greenback has certainly taken a toll on the commodity space, which has seen some heavy selling pressure today and throughout the month.  Crude oil futures are down 3.6% today to $91.18/bbl and down 5.0% for the month; gold futures are down 0.7% to $1210.10/oz. and down 5.9% for the month; silver futures are down 3.0% to $17.05/oz. and down 12% for the month; and wheat futures are down 1.3% to $4.75/bu and down 16% for the month.

The sharp selling is causing some concerns that it could be a product of forced selling, the very thought of which is exacerbating the selling interest.

The drop in oil prices in particular has taken a heavy toll on the energy sector, which is down 1.5% today, bringing its quarter-to-date loss to 9.5%.

The new quarter starts on Thursday and it will be interesting to see if buyers look to the energy space for some oversold value.

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