Market Has Little Room for Error

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The market action on April 1 was no prank. Rather, it was the hard reality of weak economic data that drove stocks lower. The decline was a continuation of Tuesday’s selling, which ended with the first quarterly loss in almost a year for the Dow industrials.

The S&P 500 fell 0.4% on Wednesday, spending the entire day in the red with seven of its 10 sectors down.

Weaker-than-expected growth in nonfarm private payrolls was blamed for the sell-off. Briefing.com had expected an increase of 225,000 jobs, and instead the ADP National Employment Report showed an increase of just 189,000. And the ISM Manufacturing Index fell to 51.5 in March while the consensus had expected 52.5.

The Dow Jones Transportation Average fell 0.8% with airlines taking a big hit. Delta Air Lines, Inc. (NYSE:DAL), American Airlines Group Inc (NASDAQ:AAL) and United Continental Holdings Inc (NYSE:UAL) all closed sharply lower.

Technology stocks also lost ground as chipmakers, represented by the iShares PHLX SOX Semiconductor (NASDAQ:SOXX), lost 0.7%. However, Godaddy Inc (NYSE:GDDY) jumped 31% from its initial public offering price of $20 a share.

The final tally indicated a return to a “risk-off” posture for many institutional investors. Treasuries rose throughout the day as the rate on the 10-year note fell by 6 basis points to 1.87%. Crude oil futures jumped 5.2% to $50.09 a barrel and gold rose 2.1% to $1,208.10 an ounce. The euro was up 0.3% against the U.S. dollar, closing at $1.076.

At Wednesday’s close, the Dow Jones Industrial Average was down 78 points at 17,698, the S&P 500 fell 8 points to 2,060, the Nasdaq lost 21 points at 4,880, and the Russell 2000 was down a point at 1,252.

The NYSE traded a total of 3.6 billion shares, and the Nasdaq crossed 1.9 billion shares. On the Big Board, advancers outpaced decliners by 1.1-to-1, and on the Nasdaq, decliners led by 1.1-to-1.

MDY Chart
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Chart Key

Since our last look at the SPDR S&P MidCap 400 ETF (NYSEARCA:MDY) on March 27, the ETF recovered from its decline to its 50-day moving average and made an unsuccessful thrust against its March high at $280. Now MDY is falling back on low volume due to the shortened holiday week.

Immediate support is at the 50-day moving average at $272, and MDY is trading within the support zone of $268 to $276. A failure to hold at this level would likely take the ETF to its 200-day moving average (an inflection point) and the three buy signals from my proprietary indicator, the Collins-Bollinger Reversal (CBR). Declining volume on a pullback is a positive, as is a flat MACD.

IYT Chart
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The iShares Dow Jones Transport. Avg. (ETF) (NYSEARCA:IYT) is in a dangerous position. There is little room for error as it is balanced on an important support line at $155 and its 200-day moving average at $155.34.

A break of the 200-day moving average is considered a major violation and would be a warning that manufacturing expectations for the third and fourth quarters may be subject to a downward revisions.

Conclusion

I have warned of a non-confirmation in the Dow indices for weeks. There is no need to describe it again except to note that it would be unusual for the other indices — S&P 500, industrials, Nasdaq, etc. — to hold if the transports broke. We will continue to be patient, trying to buy our favorite names at the prices we desire.

A word about this service: The charts constructed here are meant to guide you, the trader and investor, and give you tools to make better investment decisions. That is why the service is more descriptive and less prophetic than others. My goal is to provide you with technical support and resistance tools like trendlines and moving averages, and internal indicators, at exact levels so you can make better decisions.

I don’t want readers to rely on my occasional price projections for their sole input. Please review the charts, pick your points of importance, and use your skills to improve your investment results.

Have a wonderful Easter and please remember the reason for the season.

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/2015/04/daily-market-outlook-market-has-little-room-for-error/.

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