Is the Market About to Retrench?

by Sam Collins | April 25, 2014 2:32 am

Is the Market About to Retrench?

Apple (AAPL[1]) reported better-than-expected earnings Wednesday after the close, and rose 8.2%, giving a lift to both large-cap stocks and the tech sector on the opening. But a conflict on the Russian/Ukrainian border sent stocks into a dive by mid-morning.

The remainder of the day turned into a see-saw affair that may have satisfied traders but had little to offer investors. The Dow industrials closed flat, but the S&P 500 and Nasdaq closed higher for their seventh advance in eight sessions.

Verizon Communications (VZ[2]), a Dow component, fell 2.4% after reporting higher earnings but missing estimates. The company added fewer post-paid subscribers than its rival AT&T (T[3]). Caterpillar (CAT[4]), another Dow component, rose 1.8% after exceeding estimates. But Facebook (FB[5]) fell 0.08% after a favorable quarterly report.

FactSet reported that with 41% of the S&P 500 stocks having reported for the quarter, overall earnings are seen falling 0.2% from year-ago levels. This compares favorably to previous expectations of a 1.4% decline.

Initial jobless claims increased by 24,000 from the previous week. Durable goods orders increased 2.6% in March versus an expected 2%, and transportation orders were up 4% after a 6.7% increase in February. According to The Wall Street Journal, the durable goods report could “signal a stronger U.S. recovery in coming months.”

At Thursday’s close, the Dow Jones Industrial Average was unchanged at 16,502, the S&P 500 rose 3 points to 1,879, and the Nasdaq added 21 points at 4,148. The NYSE’s primary market traded 661 million shares with total volume of 3.1 billion shares, and the Nasdaq crossed 2.1 billion shares. Advancers and decliners were almost even on the Big Board, but on the Nasdaq, decliners outpaced advancers by 1.4-to-1.

04 25 14 rut 300x189 Is the Market About to Retrench?
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chart key 300x84 Is the Market About to Retrench?[6]

Even following the very positive report from Apple, the Nasdaq could only manage a 0.52% gain and the Russell 2000 fell. The Russell 2000 closed below its 20-day moving average and appears to have turned down from its 50-day moving average, although it may be too early to definitively say that.

04 25 14 djt 300x188 Is the Market About to Retrench?
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The Dow industrials closed unchanged, and the Dow Jones Transportation Average fell despite the good news that the transportation sector of the durable goods orders had increased 4%.

Conclusion: The stock market did not respond well to higher earnings from several key stocks, nor did it consider the economic news enough to move the yard marker. In short, Thursday was not a good day for the bulls.

We have been discussing Dow Theory, which states that in order to trigger a buy signal, both the Dow Jones Industrial Average and the Dow Jones Transportation Average must break to new highs, and we have had countless bull market confirmations over the past several years. If the Dow industrials fail to make a new high, called a “non-confirmation,” this should not be construed as a major sell signal. It means that the market currently does not have the support of buyers and most likely will retrench into a sideways move until buyers arrive.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here[7].

For a list of this week’s economic reports due out, click here[8].

Endnotes:
  1. AAPL: http://studio-5.financialcontent.com/investplace/quote?Symbol=AAPL
  2. VZ: http://studio-5.financialcontent.com/investplace/quote?Symbol=VZ
  3. T: http://studio-5.financialcontent.com/investplace/quote?Symbol=T
  4. CAT: http://studio-5.financialcontent.com/investplace/quote?Symbol=CAT
  5. FB: http://studio-5.financialcontent.com/investplace/quote?Symbol=FB
  6. [Image]: http://investorplace.com/wp-content/uploads/2013/05/chart-key.gif
  7. click here: http://www.bloomberg.com/apps/ecal?c=US
  8. click here: http://www.bloomberg.com/markets/economic-calendar/

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