After six consecutive gains, the S&P 500 closed modestly lower Wednesday, off 0.2%. The Nasdaq also broke a six-session winning streak, falling 0.8%, and the Dow industrials’ lost 0.1%.
Biotech stocks were in focus with Amgen (AMGN) and Biogen Idec (BIIB) both reporting weaker-than-expected earnings. But Gilead Sciences (GILD) easily beat estimates, and the stock rose 1.4%. The iShares Nasdaq Biotechnology (IBB) fell 1.6%.
Some of Wednesday’s decline in technology stocks was attributed to Greenlight Capital’s David Einhorn warning of a new tech bubble.
After the close, Apple (AAPL) reported a 7% increase in quarterly profits, and it announced an 8% increase in its dividend and a 7-for-1 stock split in June.
New homes sales fell 14.5% in March to the lowest level since July 2013. And the MBA’s mortgage application activity index declined 3.3% last week.
At the close, the Dow Jones Industrial Average fell 13 points to 16,502, the S&P 500 dropped 4 points to 1,875, and the Nasdaq lost 34 points at 4,127. The NYSE’s primary market traded 662 million shares with total volume of 3 billion shares. The Nasdaq crossed 1.8 billion shares. On the Big Board, advancers and decliners were almost even, but on the Nasdaq, decliners outpaced advancers by more than 2-to-1.
The Dow Jones Transportation Average gained a modest 7.36 points (0.1%) Wednesday, but the move confirmed that its quadruple-top breakout is no fluke. Its MACD extended deeper into the bullish zone, and its 50-day moving average (blue line) is arching up — a favorable sign.
Meanwhile, the Dow Jones Industrial Average is still knocking on the door of a break above the Dec. 31 closing high of 16,576 and the intraday April 4 high at 16,632. All signs are favorable, chief being MACD, which is flashing a buy signal.
Conclusion: I’m sure readers must be tired of hearing about the failure of the Dow indices to confirm the next move up. However, Dow Theory is one of the cornerstones of all technical work because of its high level of accuracy in predicting the future movement of almost all equity indices.
Jeff Saut of Raymond James defended the significance of the Dow Theory to his readers Wednesday to counter criticism from “some pundits who say Dow Theory does not work anymore because there have been so many changes in the Dow’s components.”
As Saut said, there has been just one false signal in the past 15 years. That occurred on May 6, 2010, when the “flash crash” dropped the industrials 1,000-plus points in minutes. And even that failure was reversed in one month.
It is frustrating to see the industrials struggle with the old highs on so many occasions without success. But, as Saut also pointed out, the new highs do not have to be made simultaneously. It would require less patience if they did, but we have to accept what is and not what we would like it to be.
The bullish case is growing for the big caps as one stock after another reports higher earnings. It probably would have happened Wednesday had not a famous fundamental analyst with a bearish bias voiced his opinion.
And so we will hang in there with cash in hand waiting for the signal from this most reliable of all technical events. Today may be the day.
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.