The broad market traded slightly lower on Monday as a result of weak trade figures from China and continued pressure by Russia on Ukraine.
An unexpected drop in Chinese exports in February, along with a downward revision of the Japanese government’s estimated economic growth in Q4 2013, injected more uncertainty into the U.S. stock market. There were no other significant economic reports or earnings to influence the market.
On the fifth-year anniversary of the bull market, the Dow Jones Industrial Average fell 34 points to 16,419, the S&P 500 dropped 1 point to 1,877, and the Nasdaq fell 2 points to 4,334. The NYSE’s primary market traded 627 million shares with total volume of 3 billion shares. The Nasdaq crossed 2.1 billion shares. Decliners outpaced advancers on both exchanges by about 1.2-to-1.
After breaking from a deep “V,” the Russell 2000 small-cap index has fallen for four successive days. Momentum is fading along with MACD, but the impact has been light due to low volume. The most likely direction for this week is that the index will head for the open gap at 1,165 to 1,187, consolidate, and head north again.
Conclusion: On CNBC, one speaker noted that the “bricks in the wall of worry” are getting rather high. He warned that this year could prove to be very volatile with perhaps as many as four 10% corrections (we didn’t have even one last year). He noted that we are in the fifth year of the bull market and that bull markets seldom last more than four and a half years.
Investor enthusiasm is low, but 2013 was the first year of the current bull market when fund flows went from bond funds to equity funds. He concluded that the market is in a tenuous state since the Federal Reserve is tapering, and therefore, in order to keep prices moving higher companies will have to increase earnings at a faster pace.
Well, all of this may be true. And we could add to the wall of worry a dozen other problems like China’s slowdown and Russia’s ambitions. But the fact is that for the technician there is but one measure of success, and that is the price action of the market — and it has been superb.
The recent breakout of the major indices with high volume on advancing days and lower volume on retracting days, along with scores of positive technical formations and indicators, and good group rotation, keep us on the side of the bulls. All else is conjecture.
The unfortunate result of the worrywarts’ continuous rehash of doom and gloom was that it kept many investors out of the market in 2013 — a decision that cost them 20% to 30% gains. Buy into all corrections because “the trend is your friend.” And it is up.
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.