Stocks started Monday higher, but prices eroded as the day wore on. The low volume indicated to some technicians that there did not appear to be enough buyers to keep the two-week rally going. Just 670 million shares traded on the NYSE, its second lowest daily volume of the year.
Nine of the S&P’s 10 sectors ended in the red with only the financial group showing a gain. JPMorgan Chase & Co. (NYSE:JPM) and Wells Fargo & Co (NYSE:WFC) are scheduled to report earnings today, and investors will know if Monday’s optimism was warranted. FactSet expects overall Q1 earnings to fall 4.8% year over year.
There was little in the news Thursday to influence the direction of stocks. However, oil prices rose for the third consecutive day, gaining 0.5% at $51.91 a barrel. Gold fell 0.4% to $1,199.30 an ounce, driven lower by a stronger U.S. dollar. The euro fell 0.3% versus the dollar to $1.0575 after recovering to more than $1.10 earlier in April.
At Monday’s close, the Dow Jones Industrial Average fell 81 points to 17,977, the S&P 500 lost 10 points at 2,092, the Nasdaq dropped 8 points at 4,988, and the Russell 2000 rose 1 point and to 1,266.
The NYSE’s primary market traded just 670 million shares with total volume of 2.9 billion shares. The Nasdaq crossed 1.5 billion shares. On the Big Board, decliners outpaced advancers by 1.7-to-1, and on the Nasdaq, decliners led by 1.1-to-1.
Regular readers are aware of my concern about the poor price action in the Dow Jones Transportation Average. That concern was heightened in early March when the index failed to confirm a new high by the Dow industrials, made on March 2.
My anxiety over a Dow Theory non-confirmation has increased with each failure to establish a new high. Now, with the penetration of its 200-day moving average and Monday’s minor reversal, our antennae should be alert to a major change in trend.
Conclusion
There is little need to go into an extended discussion of Charles Dow’s Theory except to say that in over 100 years it has been the basis of much of modern-day technical analysis. Despite all of our computers and sophisticated analytics, Dow Theory is still predictive. And the focus of Dow Theory is currently the Dow Jones Transportation Average.
Raymond James’ Andrew Adams opined in a recent Morning Tack that we are now “between a rock and a hard place,” which he said was one of his father’s favorite expressions. I don’t know Adam’s age, but it was an expression used by my dad as well. When applied to the current market malaise, it means there is no apparent solution to the six-month of sideways movement of the Dow Jones Industrial Average, and now it appears that the key index is deteriorating.
At the very least a caution flag is flying. Investors and traders alike should focus on the Dow Jones Transportation Average, as it should eventually reveal the ultimate direction of the market.
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.
