On Monday, investors bought defensive issues in advance of the conclusion of the Federal Reserve’s monetary policy meeting on Wednesday. The big-cap Dow industrials gained as well as the defensive Dow utilities, but the slightly more aggressive S&P 500 lost ground. The Nasdaq and Russell 2000 both fell more than 1%.
Weak economic news from China and concerns that Scotland would withdraw from the U.K. were negatives. And a weak U.S. industrial production report added to investors’ fight to safety.
Biotech stocks were subject to profit-taking following a big run that started in April. The iShares Nasdaq Biotechnology ETF (IBB) fell 1.3%.
The energy sector rebounded but is still down 4.6% in September. Chevron (CVX) rose 1.3% and Exxon Mobil (XOM) gained 0.5%. Crude oil rose 0.7% to $92.89 a barrel.
At Monday’s close, the Dow Jones Industrial Average gained 44 points at 17,031, the S&P 500 fell 1 point to 1,984, the Nasdaq lost 49 points at 4,519, and the Russell 2000 fell 14 points to 1,147. The NYSE traded a total of 2.8 billion shares, and the Nasdaq crossed 1.9 billion. On the Big Board, decliners outpaced advancers by almost 2-to-1, while on the Nasdaq, decliners were ahead by 3.2-to-1.
The Dow’s bullish “V” has deteriorated but has not yet been eliminated as a bullish indicator. Nevertheless, our focus now is on the support aspects of the chart, namely the 50-day moving average at 16,913, and the resistance line at Monday’s high of 17,052. These are inflection points that, if penetrated, are significant enough to determine the Dow’s near-term/intermediate-term direction.
The Nasdaq sliced through its 20-day moving average on the opening and is now challenging the 50-day moving average at 4,473, as well as the support band at 4,485 to 4,370 and its intermediate trendline just under 4,473.
Conclusion
The Dow is trading in a very narrow range from 17,052 to 16,913 (50-day moving average). The 50-day is an important inflection point. When it broke in July, it took the index 400 points lower before ultimately finding support at its 200-day. A closing break of that blue line would most likely result in a similar decline.
As for the Nasdaq, Monday’s 49-point decline was blamed on institutional profit-taking in order to participate in Friday’s offering of Alibaba, but the reason is unimportant from a technical standpoint. A break of the Nasdaq’s 50-day moving average at 4,473 would be viewed as a serious negative. However, a reversal within the support band would be positive.
For now, we remain neutral in both the near and intermediate term. The long-term trend is still very bullish, so deep sell-offs should be viewed as excellent buying opportunities.
Meanwhile, trading the support/resistance lines could net traders profits, since it appears the market could be entering several weeks of high volatility.
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.
