Monday’s market action followed the recurring pattern of oil down, stocks down. For the third straight session, the Dow fell, but it missed a triple-digit decline, lower by “just” 97 points, or 0.5%. The S&P 500 fell 0.8%, as did the Nasdaq, despite a higher opening.
The morning gains were quickly erased when traders realized that a sell-off in crude oil was in progress. Chevron Corporation (CVX) and Exxon Mobil Corporation (XOM) were the biggest losers on the Dow, down 2.2% and 1.9%, respectively. Oil futures fell 4.7% to $ $46.07 a barrel. The decline was attributed to a report from Goldman Sachs Group Inc (GS) that forecast oil to average $40.50 a barrel in Q2, which would bring supply/demand for black gold into balance. The overall energy sector fell 2.9%.
The technology sector was also hard hit with Apple Inc. (AAPL) down 2.1%, Google (GOOG, GOOGL) off 0.7%, and Microsoft Corporation (MSFT) falling 1.3%. But cybersecurity stocks rallied following an attack on the U.S. Central Command’s Twitter and YouTube accounts. Cyberark Software Ltd (CYBR) gained 3.5% and FireEye Inc (FEYE) rose 4.8% (see my Trade of the Day).
Gold jumped 1.4% to $1,232.70 an ounce. And the 10-year Treasury note’s yield fell to 1.91% from 1.97% on Friday.
At Monday’s close, the Dow Jones Industrial Average was down 97 points at 17,641, the S&P 500 fell 17 points at 2,028, the Nasdaq lost 39 points at 4,665, and the Russell 2000 dropped 6 points to 1,180.
The NYSE’s primary market traded 778 million shares with total volume of 3.4 billion, and the Nasdaq crossed 1.8 billion shares. On the Big Board, decliners outpaced advancers by 1.7-to-1, and on the Nasdaq, decliners were ahead by 1.6-to-1.
The chart of the SPDR S&P MidCap 400 ETF (MDY) is similar to that of the Nasdaq, which is also a mid-cap index. Both closed below their respective 50-day moving averages on Monday.
However, the Nasdaq chart has a subtle difference in that its price line closed an open gap. So even though it closed below its 50-day moving average, traders should be aware that closing a gap often leads to a short-term rally.
Nevertheless, the two patterns are not favorable for the short term, with both now depending upon major support lines as a last resort. MDY must hold above its 200-day moving average at $254, and the Nasdaq is hovering just above its critical line at 4,610.
Conclusion
Although the overall fundamental background is bullish, the technical picture is weakening. And even such luminaries as Dr. Jeremy Siegel, who forecasts the Dow at 20,000 by year end, admit that it could be a very bumpy road between now and then, i.e., “no slam-dunk.”
Even though stocks had a banner year in 2014, The New York Times’ Neil Irwin pointed out in a recent article that the year was “confounding” for the experts. Virtually no one predicted an almost 50% drop in the price of crude oil, interest rates fell instead of increasing, which was the majority view, the U.S. dollar went through the roof, and the outlook for inflation fell instead of increasing.
As a result, 85% of managed funds missed their benchmarks, and almost 90% of hedge funds lost money.
With Dr. Siegel, a brilliant tactician, at least temporarily on the sidelines in an uncertain period for stocks, we should be there too. This is no time for heroics.
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.
