Stocks retreated Monday under a cloud of lower-than-expected Black Friday sales and weaker-than-expected manufacturing data from China and the euro zone. The Stoxx Europe 600 fell 0.5%.
Retail sales over the Thanksgiving weekend were estimated to have decreased 11% from last year, according to preliminary survey results from the National Retail Federation. Wal-Mart Stores, Inc. (WMT) fell 1.5% and Target Corporation (TGT) was off 1.7%.
But the biggest declines were in tech and small caps. The Russell 2000 was down 1.6%, while the Nasdaq lost 1.3%. Apple Inc. (AAPL) fell 3.3%, and at its low of the day was off 6.4%. (See my Trade of the Day to find out whether AAPL is a buy or a sell.)
The only cyclical group to end in the black was the energy sector. Crude oil jumped 4.1% to $69.02 a barrel. With it, Exxon Mobil Corporation (XOM) rose 2% and Chevron Corporation (CVX) jumped 2.6%.
The ISM manufacturing index fell to 58.7 in November from 59, but was above expectations for 58. Order backlogs increased to 55 last month from 53 in October.
At Monday’s close, the Dow Jones Industrial Average fell 51 points to 17,777, the S&P 500 was down 14 points to 2,053, the Nasdaq dropped 64 points to 4,727, and the Russell 2000 was off 19 points at 1,154.
The NYSE’s primary market traded over 800 million shares with total volume of 4.2 billion. The Nasdaq crossed 1.9 billion shares. On both major exchanges, decliners outpaced advancers by 3.5-to-1.
The Dow Jones Transportation Average, which is considered a measure of future economic activity, broke its first support line at about 9,000 on Monday. The line had remained intact since March 2013, with one minor exception in July.
In addition to breaking support, its momentum indicator and MACD both turned negative.
The iShares S&P SmallCap 600 Index opened a negative breakaway gap on Monday. A breakaway gap of any kind is difficult to close because of the negative momentum that is created.
Support is first at its close at about $114, then at $112, and finally, at $111. Downside volume was high, and MACD issued a sell signal.
Conclusion
Monday’s sell-off mildly impacted the large caps but was devastating to small- and mid-cap stocks. But the biggest surprise was its impact on the economically sensitive Dow Jones Transportation Average. The transports broke upper channel support on negative momentum and a strong sell signal from MACD.
Rebounds are always possible, but Monday was not good for the bulls. With the exception of long-term investors, they should pull in their horns and prepare for a nasty round of selling. That selling will most likely result in a fall to at least the 50-day moving averages of the major indices at Dow 17,137, S&P 500 1,987, Nasdaq 4,533, and Russell 2000 1,132.
A rally from current levels should be considered no more than a dead-cat-bounce.
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.
