Despite positive economic numbers on Friday, stocks sold off sharply in the last 15 minutes of trading. The selling was attributed to “technical factors,” meaning rebalancing of MSCI indices, which led many institutional investors to adjust portfolios before the close. Profit-taking was also cited as contributing to the sell-off.
Earlier in the day, Chicago area manufacturing was reported to be better than expected. And the May University of Michigan sentiment survey reported its best level since July 2007.
At Friday’s close, the Dow Jones Industrial Average fell 209 points to 15,116, the S&P 500 was down 21 points at 1,631, and the Nasdaq lost 35 points at 3,456. The NYSE traded 1.1 billion shares and the Nasdaq crossed 577 million. Decliners outpaced advancers on the Big Board by 5-to-1, and on the Nasdaq, decliners were ahead by 2.5-to-1.
Our 17-month moving average chart, which goes back to 1996, shows a mega breakout from a long-term triple-top (also see 1900-2013 Dow chart from the May 29 Daily Market Outlook). There is no technical resistance above the current high.
The Dow Jones Utility Average has taken the brunt of investor selling. The swap out of high-yielding utility stocks appears to have found support at the 200-day moving average at 480. Note that MACD is very oversold.
Last week’s sell-off in the Dow Jones Industrial Average occurred following a new high on Tuesday. With MACD issuing a new sell signal and volume on Friday higher than normal, expect the 14,875 to 15,000 support zone to be tested. If the lower end of the zone gives way, the next support is at 14,444, where the index reversed in early April.
The market’s fear index, the CBOE Volatility Index (VIX), was up 12% on Friday. This jump measures expected volatility in the market.
Conclusion: The S&P 500′s 17-month moving average (above) and its daily chart (see May 29 S&P 500 chart) confirm that, at present, there is no evidence to suggest that the bull market’s major trend is in danger. The Key Reversal Day of May 22 could have been confirmed by Friday’s selling, but a turn up this week would cancel that confirmation.
The VIX is telling us to expect a period of high volatility, and that is great for traders — and even good for investors who may want to go after high-yielding utility stocks that have taken a beating since the Dow Jones Utility Average is now on its major support line at 480.
Fear triggers selling, and selling provides opportunity. Stocks like Southern Co. (SO) with a high of $48.74, now at $43.90, yielding 4.6%, Duke Energy (DUK), high of $75.46, now at $66.93, yielding 4.6%, and Pfizer (PFE), high of $31.15, now at $27.23, yielding 3.5%, are good growth opportunities. (For more, see my Top Stocks to Buy for June.)
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.