On Friday, a late, broad sell-off dropped the Dow industrials 0.2%, the S&P 500 0.3%, and the Nasdaq 0.1%. Even the technology group, which thus far has led the market to its highs, fell 0.3%.
The real story of the week, however, was the increase in interest rates and the decline of bond prices. During the week, the 10-year note’s price fell, increasing yields from 2.56% to 2.84%.
At the close on Friday, the Dow Jones Industrial Average was off 31 points at 15,081, the S&P 500 fell 5 points to 1,656, and the Nasdaq lost 3 points at 3,603. The NYSE traded 835 million shares and the Nasdaq crossed 420 million. On the Big Board, decliners led advancers by 1.8-to-1, and on the Nasdaq, decliners were ahead by 1.2-to-1.
For the week, the Dow fell 2.2%, the S&P 500 was off 2.1%, and the Nasdaq was down 1.6%.
Pressure on the Fed to begin to “taper” its bond purchases as early as September pushed bond prices down and yields up. This is an inverse chart showing the increase in bond yields. A chart of bond prices would show a sharp decline in prices.
The S&P 500′s breakdown from 1,676 made it clear that the formation that many technicians thought to be the handle of a bullish cup-and-handle formation, instead was a bearish minor head-and-shoulders top. By Friday, the formation was confirmed with a close under the index’s 50-day moving average line at 1,657. Resistance is now at the former support line at 1,676.
I voiced concern on Aug. 12, after the Dow failed to hold at the support line at 15,418. On Thursday, the index broke through support at the important 50-day moving average at 15,262. Its next support is at the May breakout point at 14,845. Resistance is at 15,418.
Although near term the Nasdaq has broken down, it is still holding within the support zone of 3,575 to 3,630, and it, unlike the other major indices, has held above its 50-day moving average, now at 3,537. However, Thursday’s gap down, followed by another down day on Friday, is a sign of weakness. Look for the Nasdaq to test its 50-day moving average soon.
Conclusion: The week ended with a late-day sell-off and a decline in the Dow for the week — its biggest in over a year. Each of the major indices was the subject of heavy selling, and each is now in a near-term downtrend with its intermediate-term trend in jeopardy.
Although the bull market is still intact, the technical evidence suggests that prices are headed for a test of the intermediate trends. This test could last for the remainder of the summer with a bottom made sometime in October.
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.