Blue-chip stocks took a hit for the fourth consecutive session as worries loomed over a possible government shutdown.
Banks were hit hard with JPMorgan Chase (JPM) falling to a four-month low after offering to pay $3 billion to the U.S. government to settle various claims. The Dow, S&P 500 and NYSE Composite all sold off during the last two hours of trading, but small-cap and mid-cap stocks held onto their early gains.
Consumer confidence for September declined to 79.7 from 81.8 in August, versus expectations of 79.8. Home prices for July rose 12.4% from year-earlier levels and were in line with expectations.
At Tuesday’s close, the Dow Jones Industrial Average was off 67 points to 15,335, the S&P 500 fell 4 points to 1,697, and the Nasdaq rose 3 points at 3,768. The NYSE traded 673 million shares and the Nasdaq crossed 422 million. Advancers led decliners on both exchanges by about 1.3-to-1.
The Dow industrials have turned away from the high of 15,710 made only four sessions ago, and have penetrated into the broad support zone of 14,760 to 15,400. Within that zone is its next meaningful support, the 50-day moving average at 15,310.
The blue chips held for most of the day, but in roughly the final hour and a half of trading, the Dow plunged over 100 points, led by the financials. The bias is against the blue chips and in favor of small-cap and mid-cap stocks.
The Nasdaq’s bull channel is much like the Russell 2000′s channel illustrated on Monday. Trading is clustered close to the top of its range, and so, with MACD overbought, the Nasdaq could pull back to its 50-day moving average at 3,657.
Conclusion: If you must own stocks or are a trader, grabbing the small-cap and mid-cap technology stocks appears to be the best near-term strategy since that is where the buying is concentrated and momentum is strongest.
Even the broad-based S&P 500 closed below 1,705, a near-term inflection point. Its next support is its 50-day moving average at 1,679. But volume was high on last week’s advance and has declined on the blue chips’ pullback. The bright side of the blue chips’ near-term weakness is that some big, profitable names can be bought at reasonable prices like my Top 6 Stocks to Buy for 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.