On Monday, a combination of profit-taking and fear that the Federal Reserve would accelerate its plan to raise interest rates led to a volatile session that ended with a loss. The major indices started strong but quickly faded, and then spent the remainder of the day attempting to overcome the early losses.
The Russell 2000 fell 0.9%, leading the major indices lower. But volume in the small caps was light, and the move lower was worse in biotechs, transports and semiconductor stocks.
Oil was strong and the U.S. dollar weak, in contrast to weak oil and a strong dollar that we saw in September. However, floor traders attributed the weakness in the greenback to profit-taking.
The CBOE Volatility Index (VIX) jumped 6.3%, indicating there is probably more volatility to come.
At Monday’s close, the Dow Jones Industrial Average was down 18 points to 16,992, the S&P 500 fell 3 points to 1,965, the Nasdaq dropped 21 points at 4,455, and the Russell 2000 fell 10 points at 1,095.
The NYSE traded a total of 3.4 billion shares, and the Nasdaq crossed 1.8 billion shares. On the Big Board, advancers and decliners were almost even with slightly more stocks declining. But on the Nasdaq, decliners outpaced advancers by more than 2- to-1.
The Dow Jones Industrial Average is the only major index to successfully breach its 50-day moving average. It is in a very narrow trading range with support at 16,934 and resistance at 17,140.
Its 50-day moving average, currently at 16,926, is a major inflection point. If broken, look out below. But if it holds, the index could make a run at new highs.
The broad-based NYSE Composite was one of the few indices to close Monday on a plus. The NYSE is comprised of every stock traded on the Big Board, so in addition to most of the Dow 30, it includes mid- and small-cap stocks. The index is in a very broad trading range of 10,558 to 10,880.
Despite its two-day rebound, the NYSE looks very “toppy.” Note the cross of the 20-day moving average through the 50-day moving average. Even though that cross has limited significance, it is a negative trading signal.
Its most important feature — the 200-day moving average, now at 10,619 — was penetrated last week, but it recovered on Friday to close above it. Another close under the 200-day would be a strong sell signal. It would also catch many by surprise since most traders focus on the other major indices.
Conclusion
We are still in a bull market, but since the overall trend is in doubt with all indices in very narrow trading ranges, it is prudent to pay close attention to the support and resistance lines that I’ve outlined in the past week. There are bargains to be had, but risk is high, so major commitments should be put on hold and traders should focus on the short side of the market.
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.
