Putting the "sell-off" in perspective

Viewed from the perspective of the 26% gain in the S&P500 since September, last week's 1.7% decline in the S&P500 did very little to dent the uptrend. Volume on the decline was modest and compared similarly to the volume on a short bout of selling in late January.  The worst of the decline also compares to the decline experienced in November. So as declines go, the current Mideast tumult was no different than the two prior declines.  See the chart below:

One indicator we watch is S&P500 stocks trading over their 50-day moving average. As expected, this indicator dropped but found support at levels of the November setback, indicating no major damage at this time.

Dow Theory is a bit precarious as the Transports took a larger hit than Industrials last week as the price of oil surged. The index settled at support near 5,000 at its late January lows. A close below support would constitute an intermediate-term downtrend and a red flag.  See the chart below:

Last week's selling in equities attracted a bid to Treasuries, as the 30-year Treasury Bond price bounced over 2% on the week. Other than this unsurprising reaction to the decline in equities, all other indicators remained positive for equities despite modest pullbacks as their main trends remained unchanged.

Some of our trailing stop hedges on the uptrend were executed last week.  While we continue to maintain stops on our long positions, we added some new longs as the market sold off, anticipating a potential "buy on the dip" as buying pressure nonetheless remains intact (we saw a nice bounce on Friday).  With a weakening dollar and outperformance of small caps, we find the large cap universe increasingly interesting.  Also interesting is emerging market equities, having sold off over the last several months.

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