by Sam Collins | November 5, 2012 2:25 am
On Friday, stocks opened higher following a strong non-farm payrolls report that indicated they had increased by 171,000 jobs. But the buying lasted for just 90 minutes before sellers in technology, materials and energy overcame the gains and drove the indices to a negative close.
At Friday’s close, the Dow Jones Industrial Average was off 139 points at 13,093, the S&P 500 fell 13 points to 1,414, and the Nasdaq lost 38 points at 2,982. The NYSE traded 791 million shares and the Nasdaq crossed 439 million. Decliners outpaced advancers on the Big Board by 2.3-to-1 and on the Nasdaq by 2.6-to-1.
For the week, the Dow lost 0.1%, the S&P 500 was up 0.2%, and the Nasdaq fell 0.2%.
On Thursday, the S&P 500 appeared to break the resistance line at 1,418, and the strong opening on Friday seemed to confirm the break. But the rally came to a screeching halt at the conjunction of the 20-day and 50-day moving averages at 1,434, reversed, and closed under the stubborn line of resistance at 1,418.
Immediate support is at 1,403, and then the 200-day moving average at 1,379, and finally, at the July 2011 high at 1,356. MACD is oversold, but its red fast line is turning down again, and that could delay a reversal.
Technology stocks, as represented by the iShares Dow Jones US Technology ETF (NYSE:IWY), have acted poorly since failing to break the April high at $78.67. The large-cap tech stocks, chiefly Apple (NASDAQ:AAPL), Google (NASDAQ:GOOG), and IBM (NYSE:IBM), have been inflicting damage on the major indices since topping in September.
The break of the intermediate trendline can be overcome if the support at $67 holds. MACD is oversold and its fast line is hooking up, indicating that a rally may be forthcoming in the sector.
Another negative for U.S. stocks has been the strength of the U.S. dollar versus other currencies. The PowerShares DB US Dollar Index Bullish Fund (NYSE:UUP) shows the primary reason for Friday’s lower close of the S&P 500 — a gap up break for the dollar through its 50-day moving average. MACD is also on a strong buy signal that could continue to put pressure on stocks and commodities. The next resistance for UUP is its 200-day moving average at $22.26.
Conclusion: Despite the uncertainties of Tuesday’s national election, costly storm damage to the East Coast, and other national and international crises, the U.S. dollar, as the leading major world currency, should be traders’ focus.
According to an article on CNBC.com, “With the subsequent grand scale monetary intervention from the Federal Reserve following the financial crisis in 2008 and 2009 still ruling the day, STRONG DOLLAR/WEAK STOCKS remains the trade of the day [Friday] and the dominant force so far this month.”
And so we are again at the mercy of the weak European nations of Greece and Portugal, and until this problem is overcome, international investors will continue to run for the buck as the safe haven. We may get a short term-bounce following the election, but it is unlikely that we will achieve new highs in the S&P 500 until Europe gets its act together.
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.
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