Both the Dow Jones Industrial Average and S&P 500 made small gains on Monday, with the later setting a new record closing high. The Nasdaq and Russell 2000 finished in the red.
Japan announced its second consecutive quarter of GDP declines, putting its economy in a recession. The Nikkei 225 fell 3%, but it recovered as a close adviser to Prime Minister Shinzo Abe called for tax cuts and cash handouts as part of a $25 billion stimulus package.
The Europe Central Bank seemed to take note of Japan’s action. President Mario Draghi said monetary policy measures may include bond buying and that the ECB will continue to do “whatever it takes” to save the euro.
Pfizer Inc. (PFE) fell 0.1% after reducing its full-year profit outlook because of a costly arrangement with Germany’s Merck KGaA to develop potential cancer drugs.
Halliburton Company (HAL) fell 10.6% after announcing an offer to buy Baker Hughes Incorporated (BHI) in a deal valued at $34.6 billion. BHI rose 8.9%.
At Monday’s close, the Dow Jones Industrial Average rose 13 points to 17,648, the S&P 500 gained 2 points at 2,041, the Nasdaq fell 18 points to 4,671, and the Russell 2000 lost 10 points at 1,164.
The NYSE’s primary market traded 705 million shares with total volume of 3.2 billion. The Nasdaq crossed 1.7 billion shares. On the Big Board, advancers outpaced decliners by 1.1-to-1, and on the Nasdaq, there were slightly more decliners than advancers.
The Nasdaq is rolling down. Initial support rests at 4,654, and that was tested Monday with an intraday low of 4,655.
The next support is much more important since it represents almost a full month of trading, and that is the October breakout point at 4,600. MACD is declining.
Small caps look even worse than mid caps. After gapping up through an intermediate trendline that began on July 1, the Russell 2000 is now challenging that line, which is currently at about 1,147. This intersects with the 200-day moving average.
Immediate support is at Monday’s low of 1,164. MACD is offering no help and will likely trigger a sell signal today.
Conclusion
As our readers know, I’m expecting a short-term pullback. Every internal indicator is overbought — or worse and close to issuing a sell signal (like MACD on the Russell 2000). Upside volume is not high enough to support a breakout, and the big caps are having a difficult time advancing. Finally, overly bullish sentiment is another red flag.
That’s the bad news. The good news (and it’s very good) in that U.S. economic numbers are the world’s best. Thus, the U.S. dollar is strong against virtually every currency in Europe and Asia.
Crude prices continue to fall, and economists tell us that should lead to robust holiday sales.
In the near term, sell into strength and buy into weakness. Set prices to buy or sell, and don’t be shaken by what you hear on TV, which almost always tells you what is happening today and not what is going to occur next week or a month from now.
We are in a broad sideways trend, so traders should move into stocks that decline rapidly to their support lines. But know where the resistance lines are and place limit orders to sell just below them.
Longer-term investors should make a list of equity favorites and the prices they are willing to pay for them. In other words, only buy quality stocks that are depressed like my Trade of 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.
