After the worst week for the Dow industrials in five months, we might have expected a rebound. Instead, Monday was a lackluster day that featured a technical glitch that interrupted trading in over 200 issues and low volume due to a bond holiday for Veterans Day.
At the close, the Dow Jones Industrial Average was off fractionally at 12,815, the S&P 500 was up fractionally at 1,380, and the Nasdaq fell 1 point to 2,904. The NYSE traded just 291 million shares and the Nasdaq crossed 307 million. Decliners were slightly ahead of advancers on both exchanges.
Like the S&P 500, the Dow industrials broke a head-and-shoulders top by slicing through the support line at 13,040. The method for determining the target of this head-and-shoulders breakdown is as follows: prior high of 13,661 – 13,040 support line = 621; 13,040 – 621 = 12,419 minimum trading target.
However Friday’s buy signal from our internal indicator, the Collins-Bollinger Reversal (CBR), and the oversold condition of MACD, plus low volume and a complacent CBOE Volatility Index (VIX) leave room for a bounce from current levels. Resistance to a rally is at the 200-day moving average at 13,000 to the neckline at 13,040.
Even though the S&P 500, Nasdaq and the Dow Jones Industrial Average have broken support and established intermediate downtrends, the Dow Theory has yet to give a sell signal. This is because the Dow Jones Transportation Average is in consolidation. It has declining tops and rising bottoms, which form a huge right triangle with resistance at the 200-day moving average at 5,136 and support at about 4,900. MACD is on a sell signal, so anticipate a test of the support.
Conclusion: The variables confronting investors are almost too numerous to list. However, chief among them are the “fiscal cliff,” the European debt problems, a slowdown in China, and Q4 earnings. Monday was a quiet day on Wall Street, but any one of these problems could explode. It’s a jungle out there.
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.