Stocks lost ground Tuesday as the potential impact of a reduction in the Federal Reserve’s stimulus plan persuaded investors to cash in on some of their gains. The losses were greatest in the utilities and consumer staples sectors, but nine of the 10 S&P sectors showed a loss, with only materials posting a gain.
Despite the approval of the Volker Rule, which makes it more difficult for banks to take risks in their trading businesses, the big banks gained. JPMorgan Chase (JPM) rose 0.34% and Goldman Sachs (GS) was up 1.23%.
At the close, the Dow Jones Industrial Average was down 52 points to 15,973, the S&P 500 fell 6 points to 1,803, and the Nasdaq was off 8 points at 4,060. The primary NYSE market traded 632 million shares with total volume of 3 billion shares. The Nasdaq’s total volume was 1.8 billion shares. On the Big Board, decliners were ahead of advancers by 1.5-to-1, and on the Nasdaq, decliners were ahead by 1.9-to-1.
The Dow, like the other major indices, is in a bull market in the intermediate and long term. Near term, it is neutral and trading within a small pennant drawn from the low (base) at 15,825 and the high at 16,175.
On Tuesday, the 20-day moving average provided support, sitting just 3 points below the low of the day, which was 15,969. MACD is in bearish territory but flattening. An overall major support zone starts at 15,700 and contains the important 50-day moving average at 15,614.
Conclusion: The major trend is up, but the Dow is stuck in a small trading pattern that can be useful for traders since it clearly defines the support and resistance lines from which they make buy and sell decisions.
For example, if the 20-day moving average gives way to sellers, traders may want to use a volatile shorting strategy where they could benefit from a drop to around 15,830. On the other hand, if Dow stocks get some heavy buying that crushes the high at 16,175, the primary uptrend would be confirmed and traders would be wise to load up on stocks.
After the close, Rep. Paul Ryan and Sen. Patty Murray announced that politicians have reached a budget arrangement that “will avoid a government shutdown in 2014.” The deal must be approved by the House of Representatives and Senate, but both were optimistic that it would pass. Perhaps this will be enough to move the market from its pre-holiday lethargy and usher in the man in the red suit.
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.