Fin - Breakout - US

Dos Hombres OMG Edition: Don’t Fight the Downtrend

Breakout

Well, that was special. The worst one-day sell-off in a year, coming just two days before the big May jobs number and extending a retreat of stocks, and confidence, that began to unravel a month ago.

So far, the retreat remains modest at about down 4%, but dig in a bit deeper and that "consolidation" starts to move a lot more toward becoming a full blown correction (loss of 10%) -- something we haven't seen in a year.

Specifically, I am referring to the outsized slide of several key industries: Banks, diversified financials and insurers, autos and parts, capital goods, energy and materials, all of which are at least halfway there already. This giveback may be a tempting opportunity for bottom-fishers and value funds, but it still looks and feels a bit too early for that.

And Macke would concur, saying that the 1,300-level support in the S&P 500 looks thin and that the March 1,250 lows are in play. For the record, even if the S&P 500 does retest 1,250 and effectively wipe out all of this year's gains, it would still be about 25 points shy of a 10% correction. Just saying.

Speaking of shy (not!), fresh off his ''It's Not the Data, Dummy'' scribe yesterday, Macke comes strong again, with the laser-like analysis. "Sell til you can sleep" is his nugget du jour. Meaning simply if the market turbulence is keeping you up at night, it's time to reduce your exposure.

So now what? Clearly the rotation to defensive sectors is continuing to pay off with what I call the SHUT Up/Down portfolio leading the way in the 30-day derby. That's of course shorthand for Staples, Health Care, Utilities and Telecom, and longhand for a safe place to hide out until the storm passes.

Data fiends should breathe a little easier after the weekly jobless claims came in benign, leaving only Friday's nonfarm payrolls to survive before we head in to a week of data-withdrawal that will see the Fed's beige book as the centerpiece.

So until the next episode of Dos Hombres feel free to mix it up in the comments section below and also watch out for our spontaneous observations on Twitter @JeffMacke and @MattNesto.

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