Earnings took a back seat as geopolitical concerns finally took center stage. The U.S. and European Union adopted new economic sanctions against Russia, and the longer-term implications have investors concerned.
Another concern is the Federal Reserve’s monetary policy statement due today. The Fed is expected to cut another $10 billion from the current $35 billion monthly bond-buying program. And many believe that there will be a discussion of an increase in short-term interest rates from zero. However, various Fed officials have been hinting that an increase is not being discussed for this year.
Several economic reports were of interest: The Case-Shiller Home Price Index for May rose 9.3%, where 10% was expected, and the Conference Board’s Consumer Confidence Index jumped to 90.9 in July from 86.4, which puts the index at the highest level since October 2007. Analysts had expected 85.6.
Despite losses in the major indices, the technology sector gained with chipmakers leading. Biotech stocks advanced, with iShares Nasdaq Biotechnology (IBB) up 1.1%.
At Tuesday’s close, the Dow Jones Industrial Average fell 70 points to 16,912, the S&P 500 lost 9 points at 1,970, the Nasdaq fell 2 points to 4,443, and the Russell 2000 gained 2 points at 1,142. The NYSE traded total volume of 3.2 billion shares, and the Nasdaq crossed 2.1 billion. Decliners outpaced advancers on the Big Board by 1.5-to-1, and on Nasdaq, there were slightly more advancers than decliners.
Although the small-cap Russell 2000 has failed to keep pace with the larger indices, especially the S&P 500 (see July 28 Daily Market Outlook), the index is attempting to make a second bottom within nine sessions at its 200-day moving average, now at 1,144. After penetrating the 200-day in May, it reversed, and in six weeks, drove to within a fraction of a new high.
Now the index is turning from a very sold-off MACD indicator and is only 2 points from popping through the 200-day again. If it can sustain a close above it, the next barrier is the 50-day moving average at 1,159. But if the index turns down and penetrates the recent closing low made on July 17 at 1,133.60, we could see a quick test of the May low at 1,082.53.
Until this year, the bull market had been paced by the small and mid caps. But now the small caps are under pressure while the mid caps (Nasdaq) and large-caps have led.
Technically the price action of the Russell 3000 is bearish. Two major negatives overhang the index — its failure to convincingly hold above its 200-day moving average and a menacing double-top at 1,208. However, the stocks in the index are fighting to regain upside momentum, and unless the index fails to advance, I remain a bull.
I could be wrong, but buying into small caps at the current level may prove to be a good strategy.
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.