Monday’s drubbing was followed by a lethargic low-volume rebound Tuesday, which was triggered by a Case-Shiller 20-City Home Price Index that had a lower-than-expected decline. But consumer sentiment was a disappointment falling to 62 where 64 was expected.
The market lost much of Monday’s volatility but regained some of the losses. The Dow Jones Industrial Average rose 32 points to 12,534, the S&P 500 closed at 1,320, up 6 points, and the Nasdaq was up 18 points to close at 2,854. The NYSE traded 711 million shares and the Nasdaq crossed 416 million. Advancers led decliners by 1.7-to-1 on the Big Board and by 1.3-to-1 on the Nasdaq.
Volatility is a key characteristic of the Dow Jones Industrial Average since the late-April top. The index broke the 200-day moving average briefly in early June, then bounced, and in late June, penetrated the 50-day moving average.
Despite Tuesday’s 32-point advance, the test of the 200-day may not be over. Sluggish volume and a lack of depth, as well as a heavy-duty sell signal from the stochastic, tell us that the bulls are under more pressure than the bears.
Dow Theorists will take note of the channel down chart formation in the Dow Jones Transportation Average. Another interesting characteristic of this chart is the squeeze on prices being exerted by the 50-day and 200-day moving averages as the 50-day is falling and the 200-day is rising. Lower highs and lows make this a bearish formation. Near term, the stochastic has issued a strong sell.
Neither the industrials nor the transports are bullish, but the Dow Jones Transportation Average is more bearish, perhaps forecasting an economic slowdown later this year.
Conclusion: An overall consolidation is still occurring following the massive breakdown in May. But although the overall trend is sideways for the broad-based indices, the two Dow indices are exhibiting a non-confirmation since the industrials are sideways and the transports are down. This is usually a negative indicator, but it could also mean that the overall market will maintain its sideways posture with the usual heart-stopping volatility until October.
Today’s Trading Landscape
To see a list of the companies reporting earnings today, click here.
For a list of this week’s economic reports due out, click here.