Stocks fell on a broad front Monday with small caps leading the way down. The Russell 2000 fell 1.5%, the Nasdaq lost 1.1%, and even the S&P 500 fell 0.8% with all 10 of its sectors losing ground.
The Chinese finance minister indicated that hopes for any new stimulus in the country had no basis. This was especially unsettling following the “successful” offering of Alibaba (BABA). Shares of the Chinese e-commerce company fell 4.3% on the day.
Emerging markets took a big hit, with iShares MSCI Emerging Markets (EEM) off 1.5%. And Caterpillar (CAT), which supplies mining and construction equipment to emerging economies, fell 1.6% and was among the biggest losers on the Dow
U.S. existing home sales for August fell 1.8%, while analysts expected a 1% increase. This was the first monthly decline since March, and overall sales are down 5.3% year over year.
At Monday’s close, the Dow Jones Industrial Average was down 107 points to 17,173, the S&P 500 fell 16 points to 1,994, the Nasdaq was off 52 points at 4,528, and the Russell 2000 fell 18 points to 1,129.
The NYSE traded total volume of 3.4 billion shares, and the Nasdaq crossed 1.9 billion shares. On the Big Board, decliners outpaced advancers by 4.7-to-1, and on the Nasdaq, decliners were ahead by 3.9-to-1.
Although the Nasdaq topped its Sept. 3 high of 4,610.14 on Friday at 4,610.57, it turned sharply lower Monday, placing the pressure on the bulls to maintain the upward momentum. The first support is at the 50-day moving average at 4,488, which is slightly above the top of the support zone of 4,485 to 4,370.
Monday’s smackdown in the index was a serious blow to the bulls. With MACD heading lower, the 50-day moving average takes on even greater importance.
The broad trading range of the small-cap Russell 2000 is clear: 1,083 to 1,214. But what is startling is Monday’s death cross, in which the 50-day moving average crossed down through the 200-day moving average. MACD is in its bear zone, which is another negative.
Conclusion
The soldiers — i.e., the Nasdaq and especially the Russell 2000 — are definitely in retreat. It is impossible to predict how far this retreat will take the mid- and small-cap stocks or if it will impact the big-cap indices.
But we do have clear guidelines for the Nasdaq and Russell 2000 — the support and resistance zones on our charts. Traders should use those lines as buy and sell points rather than trying to outguess the near and intermediate direction of the market by taking a contrarian view. The near-term trend is down.
On Sept. 15, I warned: “The critical end of third-quarter triple witching will occur this Friday, and according to the Stock Trader’s Almanac, you should not be long the week following it. The Almanac reports that since 1991 only five of those weeks ended up and 17 were down. And in 2012, that week ended with a Dow loss of 737.61 points.”
Traders should now be short or out of the market until prices stabilize.
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.
