The Dow industrials fell for the third straight day in a volatile session in which the index had a 260-point range. It was the first time this year that the Dow has declined for three successive sessions.
The utilities sector fell 1.1%, taking its quarterly loss to over 5.4%. The sector had been a leader, up over 16% from January until its high in late April. Biotechnology stocks lost 2.2% and building stocks fell by 0.4%.
At Wednesday’s close, the Dow Jones Industrial Average was down 127 points to 14,995, the S&P 500 fell 14 points to 1,613, and the Nasdaq was down 37 points at 3,400. The NYSE traded 691 million shares and the Nasdaq crossed 379 million. On the Big Board decliners led advancers by 3.5-to-1, and on the Nasdaq decliners were ahead by 2.2-to-1.
The market’s fear gauge, the CBOE Volatility Index (VIX), rose 8.9% to its second highest close of the year. The pattern suggests increased volatility and market weakness for the next two to three months.
The S&P 500 is trapped in a narrow trading zone that represents Wednesday’s high and low: 1,611-1,638. The bearish resistance line is at 1,638 and support is at the 50-day moving average at 1,611. The intermediate support line is at 1,600, which is also psychologically important. MACD is oversold and due for a bounce.
Like the S&P 500, the Dow is trading in a very narrow zone bounded approximately by Wednesday’s high and low (15,241-14,981). The 20-day moving average is at 15,244 and the 50-day moving average is at 14,969. The index closed below the psychologically important round number of 15,000. MACD is oversold and due for a bounce.
Conclusion: During the past two weeks, several technical patterns have changed: VIX has become more volatile, the “no losses on Tuesdays” streak was broken, utility stocks have retraced all of their gains since February, and the Dow industrials and S&P 500 retreated to trade in very narrow zones.
Following a late bond rally on Tuesday, it appeared that Wednesday would be strong, and it was — for about 100 points in the first minute. From there to the close it was all downhill.
In such a volatile market it is best to let the market tell us of its future direction. If it can form a base at Wednesday’s low, that base could hold throughout the summer. However, high volatility usually accompanies lower prices. A further penetration of the support lines in the charts shown above could break the intermediate trendlines and provide for a very uncomfortable summer.
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.