On Wednesday, stocks recovered a small portion of the ground lost over the last three days; however, serious economic and geopolitical factors were cited by traders as reasons for low investor participation in the market.
Energy and biotechnology shares led a tepid advance, which was inhibited by higher fuel prices and falling home sales. The National Association of Realtors said pending home sales fell 1.3% in July versus an expected gain of 0.2%.
At the close, the Dow Jones Industrial Average gained 48 points at 14,825, the S&P 500 rose 4 points to 1,635, and the Nasdaq gained 15 points at 3,593. The NYSE traded 598 million shares and the Nasdaq crossed 327 million. Advancers led decliners on both exchanges by about 1.25-to-1.
The Dow industrials’ chart is technically the weakest of the major indices’ charts. After topping in July, the index took a dive into August that has lasted the entire month.
The selling of blue-chip stocks drove the index through some crucial areas of potential technical support, and not one of them held. First, the support at 15,418, which represented a neckline gave way, along with the 20-day moving average. Then the more important 50-day moving average melted, followed by two inflection points at 14,865 and 14,880.
Now holders of the highest-quality stocks in America are confronted with the possible breakdown of support at 14,845, and most significant of all, a piercing of the Dow’s 200-day moving average.
Conclusion: Despite the threatening technical picture, moving averages of the magnitude of the 200-day moving average don’t usually give way easily — that is what makes them major support lines.
And since the decline has been accompanied by very low summer volume and propelled by the shaky news of an attack on Syria that has been thoroughly communicated to friends and enemies alike, further negative surprises seem unlikely.
Buyers are probably waiting to pounce; however, this is not the time to buy. Wednesday ended with a minor buy signal from our internal indicator, the Collins-Bollinger Reversal (CBR). This and the oversold condition of the market should result in at least a minor bounce.
If it fails, September will be a grim month for the bulls. If stocks stabilize, a trading range between 14,600 and 15,400 could provide for some profitable trades and even good long-term positions. It is again time to allow the market an opportunity to telegraph its next move.
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.