A combination of concerns over Greek debt (again), a rising U.S. dollar, expectations of an interest rate increase and a possible technical breakdown sent stocks lower on Tuesday. The shortened week may have also played a part in the absence of buyers, but with all of the major indices lower by 1%-plus, analysts seem concerned that a correction is already in progress.
Economic reports support a rise in rates this year. Durable goods orders and new home sales for April were better than expected, prompting a key Federal Reserve official to voice his opinion that a rate increase would probably come as early as September.
This resulted in profit-taking in technology stocks, small caps and other groups that have the biggest gains for the year. Energy stocks (-1.6%), technology (-1.5%), materials (-1.3%) and industrials (-1.1%) led the way down. But defensive sectors, like utilities, telecom services and consumer staples also fell, though not as sharply as more aggressive sectors.
Gold fell 1.4% to a two-week low, closing at $1,186.90. Light, sweet crude oil fell 2.8% to $58.03 a barrel due to the dollar’s strength. And U.S. Treasury bonds rose as worries over Greece intensified. The yield on the 10-year note fell to a three-week low at 2.14%.
At Tuesday’s close, the Dow Jones Industrial Average was off 190 points at 18,042, the S&P 500 fell 22 points to 2,104, the Nasdaq was down 57 points at 5,033, and the Russell 2000 fell 13 points at 1,239.
The NYSE’s primary market traded 812 million shares with total volume of 3.3 billion. The Nasdaq crossed 2.6 billion shares. On the Big Board, decliners outpaced advancers by 3.8-to-1, and on the Nasdaq, decliners led by 3-to-1.
The struggling S&P 500 has had three false breakouts this year. Accompanied by a clear non-confirmation on the MACD (new highs in price should carry through to the MACD), the near-term outlook is shaky at best.
I’ve pointed out both negative technical factors before, but with the S&P 500 now at the crucial 50-day moving average, and downside volume increasing, the pressure to drop to at least the 200-day moving average is increasing.
Conclusion
Traditional safe havens like utilities, gold and health care stocks are down along with the more volatile sectors. This usually indicates that margin calls are forcing holders of even the defensive sectors to sell.
In other words, as the S&P 500 approaches the key 50-day moving average at 2,097.09, stock holders will get little support from potential buyers, who see a top forming. And a top at the beginning of a traditionally sluggish time (summer) will get little in the way of support from institutional investors either. Even if cash is in abundance, few are willing to commit at this level, and neither will I.
But sharpen your pencils and decide where you will be willing to buy the best of the best that got away from you last year. If I’m correct, you will be able to buy some of them at discounts of 10% to 20% to current prices. Banks, biotechs and small-cap technology stocks are high on my list of possible bargains.
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.
