Will the Dow Indices Break Down or Bounce?

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Stocks and crude oil fell again on Monday, with the Dow industrials dropping 0.6% and oil down 3.3%. It was the fourth straight decline for crude, which closed at $55.91 a barrel.

Stock holders appeared to be selling some of their winners and cutting back on risk in case the market continues to fall.

One of the year’s best-performing ETFs, iShares NASDAQ Biotechnology Index ETF (IBB), fell 2.8% but is still up 31% year to date.

Last week’s sell-off dropped the P/E ratio of the S&P 500 to 15.6 times next year’s earnings, according to FactSet, down from 16.2 early in the week.

The Federal Reserve concludes a two-day meeting on Wednesday. With the stock market and oil in decline, investors are not expecting any announcement regarding an increase in interest rates.

The Empire State Manufacturing Survey fell to -3.58 in December from 10.16 in November, the first contraction in nearly two years and a far cry from the 12.4 analysts estimated. However, industrial production in November increased 1.3% where an increase of 0.7% was expected.

At Monday’s close, the Dow Jones Industrial Average fell 100 points to 17,181, the S&P 500 lost 13 points at 1,990, the Nasdaq fell 48 points to 4,605, and the Russell 2000 was down 12 points at 1,140.

The NYSE’s primary market traded 980 million shares and total volume of 4.3 billion. The Nasdaq crossed 2.1 billion shares. On the Big Board, decliners outpaced advancers by over 3-to-1, and on the Nasdaq, decliners were ahead by 2.5-to-1.

DJI Chart
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Chart Key

The Dow Jones Industrial Average broke through the support line drawn from its closing September high and its 50-day moving average at 17,271. However, its MACD indicator, as well as others, is oversold, indicating that a bounce might be near.

DJT Chart
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The Dow Jones Transportation Average is trading in a broad channel down formation with immediate support just under Monday’s low of 8,783. Major support now rests at its 50-day moving average at 8,732, and the September closing high of 8,715. Below that is the 200-day moving average at 8,215.

Conclusion

All of our internal indicators are now oversold, and two major Dow charts are at critical support areas. It is possible for them to have a total breakdown and even a 20% decline from their November highs. However, it is more likely for stocks to bounce today and perhaps for the remainder of the week.

But both the near and intermediate trends are down, and volume and downside breadth have increased. Thus, rallies should be used as selling opportunities unless the unlikely possibility of a Santa Claus Rally occurs. Despite the name, this phenomenon most often occurs after Christmas, and the extreme weakness of the past six trading sessions suggests that this pattern may repeat.

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.


Article printed from InvestorPlace Media, https://investorplace.com/2014/12/daily-market-outlook-will-dow-indices-break-bounce/.

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