Santa Claus Rally Broken as Dow Jones Loses 18,000

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Stocks dropped on Tuesday in what was the strongest bout of selling pressure in three weeks. In the process, the bears broke the unblemished post-Fed uptrend that had pushed stocks powerfully up into the Christmas holiday. You know, the one that had the Dow Jones Industrial Average up more than 1,000 points in just six days to cross over the 18,000 level for the first time ever.

Yeah, that one.

In the end, the Dow Jones lost 0.3% to move back below the 18,000 level, the S&P 500 lost 0.5%, the Nasdaq Composite lost 0.6%, and the Russell 2000 lost 0.6%.

There was no specific catalyst for the drop — just the nagging feeling that stocks had gone too far too fast on weak volume, narrow breadth and in defiance of the ongoing weakness in energy prices and the safe-haven bid for Treasury bonds.

On the economic front, the Conference Board’s confidence index for December also missed expectations slightly, rising to 92.6 vs. the 93.3 that was expected. Still, this was a two-month high. The current conditions sub-index jumped to its highest level since February 2008. Separately, the S&P/Case-Shiller Home Price Index indicated home price gains re-accelerated in October from their summertime funk on a month-over-month basis.

NYSE

Technically, what was notable was that the NYSE Composite — my preferred stock market measure — is once again falling away from overhead resistance that has plagued it since topping back in July. In reality, this is when most of the stock market actually hit its peak; recent gains in more narrowly focused indices like the Dow have been driven by big gains in a small group of stocks.

You can see this in the way that nearly 85% of NYSE stocks were above their 50-day moving average back in July vs. nearly 75% in late November vs. just 60% now.

Other concerns that stocks will need to overcome in the first half of 2015 include political gamesmanship over the budget in Washington as the GOP takes control of the Senate; a possible exit of Greece from the eurozone; the hit to corporate profits and capital spending from oil’s decline; and the fact that stocks have disconnected badly from both commodities and the bond market, both of which have been warning of a slowdown in growth for months.

In response to the weakness seen this week, I’ve recommended new front-month put option positions against Intel (INTC) and Twitter (TWTR) to my Edge Pro subscribers. The positions are already up 16% and 7% over the past 24 hours.

Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters.

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Article printed from InvestorPlace Media, https://investorplace.com/2014/12/santa-claus-dow-jones/.

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