Stocks were hit with a heavy round of selling on Monday, with all major indices deeply in the red. The S&P 500 suffered its first four-day loss since December 2013 and the biggest one-day loss since early October.
The selling was broad-based, but with crude oil falling under $50 a barrel, energy stocks were driven down more than 4%.
European stocks took a beating over new fears of Greece’s potential exit from the euro zone. As a result, the euro fell to under 1.19 against the U.S. dollar during the weekend. On Monday, the euro closed at 1.1940, but European markets also suffered a broad decline.
In the United States, the day’s biggest decliners were stocks that normally benefit from higher oil prices. Chevron Corporation (CVX), Exxon Mobil Corporation (XOM) and Caterpillar Inc. (CAT) accounted for almost one-quarter of the decline in the Dow industrials.
Defensive investments gained as buyers flocked to them at the expense of equities. The yield on the benchmark 10-year Treasury note fell to 2.04%, and gold futures rose 1.5% to $1,203.90 an ounce.
The only group to buck the sell-off was health care, and even it ended with a loss of 0.5%. The iShares NASDAQ Biotechnology Index ETF (IBB) fell just 0.2%. It was helped by Gilead Sciences, Inc. (GILD), which gained 2% after a report that CVS Health Corp (CVS) will give preferred status to a pair of Gilead’s drugs.
At Monday’s close, the Dow Jones Industrial Average fell 331 points to 17,502, the S&P 500 lost 38 points at 2,021, the Nasdaq was down 74 points at 4,653, and the Russell 2000 fell 17 points to 1,181.
The NYSE’s primary market traded 845 million shares with total volume of 3.7 billion, and the Nasdaq crossed 1.8 billion shares. On the Big Board, decliners outpaced advancers by over 3-to-1, and on the Nasdaq, decliners were ahead by 2.4-to-1.
The Volatility S&P 500 (VIX) has spiked more than 38% in the past six days, displaying an increase in investor fear of a pending decline in the S&P 500. It also indicates an extraordinary increase in short-term hedging against near-term volatility.
Like every other major index, the S&P 500 broke down through its 50-day moving average at 2,040.
The index also plunged through its initial breakout line at 2,079, but held at the all-important support I’ve discussed many times at 2,020. MACD issued a clear sell signal.
Below 2,020, the next support is at the December low of 1,973, followed by the 200-day moving average at 1,946.
Conclusion
The seasonal importance of stock price movement is shown by the absence of a Santa Claus Rally and the subsequent negative impact on the market. Monday was the final chance for the market to remove the uncertainty created by the failure to rally. Not only did stocks not rally, but support lines were crushed in a rush for the exit.
Bulls will claim that the selling was not heavy enough to be of major significance and will provide a host of reasons for the breakdown. But the fact is clear that at a crucial point in a major cycle, stockholders sold when they were expected to buy, ending the S&P 500’s longest streak (264 days) without four straight down days in 87 years.
No single seasonal indicator is as important as the January Indicator, which states,”As January goes, so goes the year.” Admittedly the lack of a Santa Rally and its impact on the remainder of the month is not as fully documented as the January Indicator; however, the first two days of the month have not been supportive for the bulls.
Thus, I am delaying my annual targets for the major indices until the end of the month or until the current negative short-term outlook is resolved. Meanwhile, assume that the major bull market is still intact and make a list of quality stocks and the prices that you are willing to pay for them.
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.
