On Friday, stocks closed with very slight gains, and the week ended with a loss. It was the worst week in the last four months and the second consecutive losing week.
But the S&P 500 is up 24% for the year, its best annual performance in a decade. And with relatively low volume, there is no evidence of a selling panic. But there is concern over the Federal Reserve’s meeting next week and a possible decision to begin tapering its bond buying.
The producer price index fell in November — its third straight drop – when an unchanged reading was expected. Thus, there is no evidence of inflation, which may extend the need for immediate tapering.
At Friday’s close, the Dow Jones Industrial Average gained 16 points at 15,755, the S&P 500 fell slightly to 1,775, and the Nasdaq gained 3 points at 4,001. The NYSE traded a total of 3 billion shares and the Nasdaq crossed 1.6 billion. On the Big Board, advancers were ahead of decliners by 1.3-to-1, and on the Nasdaq, advancers were ahead by 1.4-to-1.
Acknowledging the fact that I’ve mentioned the support line at 1,775 in almost every chart of the S&P 500, the importance of that line cannot be overemphasized. In fact, on both Thursday and Friday, the index closed on the line even though other indicators were lower and MACD fell slightly. But below 1,775 there is still substantial support at 1,729 to the 50-day moving average at 1,762 to turn aside a serious attempt on the part of the bears to turn the overall trend south.
As noted on Thursday, it would be positive to have an intraday penetration of the lower Bollinger Band and a higher close for the day. We didn’t get that on either Thursday or Friday, but the price did move away from the Band, and that, too, is positive. In a serious decline, price usually tracks the lower Band and sometimes even exceeds it.
Conclusion: The current consolidation, or downturn, is related directly to the possibility of the Fed tapering. The Fed governors meet on Tuesday and Wednesday, and on Wednesday, they will issue their decision as to any rate changes and tapering of their bond-buying plan. Until they issue their statement, expect stocks to trade sideways.
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.