Stocks suffered a broad-based decline Thursday as weak data from China snapped a two-day winning streak. The S&P 500 was hit with its second-largest decline of the month, falling 0.9% with 9 of its 10 sectors posting losses. The Dow Jones Industrial Average fell 1.1% to its lowest close since Dec. 19.
Emerging markets and currencies were hurt the worst, since it was felt that China’s manufacturing contraction in January could continue for an indefinite time. Treasuries and gold rallied as investors headed to safer havens.
Stocks started strong, boosted by earnings from 16 of 17 companies meeting or exceeding consensus estimates. But the second largest member of the Dow 30 — IBM (IBM) — lost 0.9% ahead of its after-hours earnings release. Netflix (NFLX) jumped 16.5% after beating analysts’ forecasts.
At Thursday’s close, the Dow Jones Industrial Average fell 176 points to 16,197, the S&P 500 lost 16 points at 1,828, and the Nasdaq was down 24 points at 4,219. The NYSE traded a total of 3.9 billion shares and the Nasdaq crossed 2.1 billion shares. Decliners outpaced advancers by just over 2-to-1 on both major exchanges.
The Nasdaq is still in a powerful uptrend having made a new 13-year high on Wednesday. Near-term support is at 4,177 to 4,182, with the 20-day moving average at 4,173 adding support. MACD is in the bullish zone.
The S&P 500 is still holding above its initial support line at 1,813 and its 50-day moving average at 1,812. A violation of these initial support lines would be near-term bearish.
As long as the S&P 500 holds the line at 1,812-1,813, I remain bullish. Thus, we should begin to take positions in stocks that have been overpriced and have corrected back to prices that you consider fairly valued.
Conclusion: The Nasdaq and the Russell 2000 have made recent new highs, and the Dow Jones Transportation Average made another new high Thursday. The path of least resistance is still up unless the support zone of the S&P 500 is violated on a close. Use stops and buy only those stocks that have strong fundamental and technical structures.
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.