Nine weeks of opening-day losses came to an end on Monday. The Dow started strong and held for most of the day but gave back almost two-thirds of the gains in the last 20 minutes of trading. There was little in the way of economic or corporate news to propel it along, and it closed on lower-than-average volume and a lack of enthusiasm.
At Monday’s close, the Dow Jones Industrial Average was up 21 points at 13,118, the S&P 500 rose 3 points to 1,394, and the Nasdaq gained 22 points at 2,990. The NYSE traded 646 million shares and the Nasdaq crossed 297 million. Advancers edged out decliners by 1.6-to-1 on both exchanges.
On Monday, the S&P 500 finally bested its June high and briefly broke the top of its bull channel. Sellers drove the index under the upper resistance line after hitting an intraday high of 1,400 even.
However, the Nasdaq had no trouble piercing both the intermediate bearish resistance line (red dashed line), and it also closed above the June high. But it, too, is having a problem with its stochastic — new highs in price are not being replicated by this internal indicator.
Conclusion: The non-confirmation by the stochastic of both the S&P 500 and Nasdaq alone would not appear to be a major problem if other non-confirmations did not exist. But so far, the S&P 400, the S&P 600 and the Russell 2000 have not confirmed by bettering their June highs. And most importantly, the Dow is in non-confirmation because the Dow transports are far from even breaking from their restricted trading range (see the July 31 Daily Market Outlook).
And there are other worries. It has been government central bank fiddling and not earnings that have been the main reason for the recent market strength. Of the 1,702 total companies that have reported, the earnings beat ratio is at just 59.9% compared to the beat rate of 67.3% on the S&P 500. And the revenue beat rate is just 48.2%. But most troubling is that companies’ forward earnings guidance is currently negative. (Thanks to Jeff Saut of Raymond James for these numbers.)
This is looking more and more like another April 2 and May 1 when euphoria quickly turned to despair. My advice is to sell or wait it out. I would not be a buyer until these issues are sorted out.
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.