On Monday, stocks fell for the second day over worries about Greece’s intent and its ability to meet its payments to creditors. Talks appeared to break down as pressure is being placed on the Greek government to cut pensions and wages.
The Dow Jones Industrial Average fell 200 points early in the day, but a rally took back almost half of the losses. The blue-chip index ended the day down 0.6% while the S&P 500 was off 0.5%.
In response to the Greek crisis, Germany’s 10-year bund became a safe haven, and its yield fell to 0.82%. As buyers flocked to the bund, the price of Italy’s 10-year bond fell and its yield increased to 2.33%. It was a similar story in Spain, with the country’s 10-year yield rising to 2.38%.
In addition to the European Union’s crisis, investors are concerned that recent economic strength in the United States will encourage the Federal Reserve to raise rates earlier than previously forecast. The Fed will meet on Tuesday and Wednesday of this week.
Nine of the S&P’s 10 sectors closed in the red with industrials leading the pack lower, down 0.8%. The health care sector was the sole gainer, up 0.1%.
The Empire State Manufacturing Survey for June was reported at -2, down from a reading of 3.1 in May. This was well below expectations of an increase to 6.
Industrial production also missed expectations, falling 0.2% in May, and manufacturing output declined 0.2% last month. The NAHB Housing Market Index for June was a bright spot, rising to 59 from 54. Analysts had expected a reading of 56.
Both gold and U.S. Treasury bonds rose in price as investors sought to hedge Europe’s difficulties. Gold futures increased 0.6% to $1,185.30 an ounce, and the yield on the 10-year Treasury note fell to 2.36% from 2.39% on Friday. Crude oil fell 0.7% to $59.52 a barrel.
At Monday’s close, the Dow fell 108 points to 17,791, the S&P 500 dropped 10 points to 2,084, the Nasdaq was off 21 points at 5,030, and the Russell 2000 lost 4 points at 1,261.
The NYSE’s primary market traded a below-average 734 million shares with total volume of 3 billion. The Nasdaq crossed 1.7 billion shares. On the Big Board, decliners outpaced advancers by 1.8-to-1, and on the Nasdaq, decliners led by 1.5-to-1.
On the S&P 500, the support band at 2,093 to 2,117 was broken and this, along with the break through the 50-day moving average, confirms at least a near-term downtrend.
Additionally, a close below the Collins-Bollinger Reversal (CBR) signal (my proprietary indicator) at 2,072.14 would trigger a special rule that reverses the prior minor buy to a major intermediate sell signal.
The next support is the 200-day moving average at 2,048.
Monday’s low on the NYSE Composite came perilously close to hitting the 200-day moving average at 10,885. A week ago, the intraday low penetrated that support line. I caution investors to be aware that if this index closes below 10,885, an intermediate sell signal would be triggered.
Conclusion
With three of five major indices looking weak, there will be time to study the only indices that are not threatening to reverse to intermediate downtrends. Those two indices are the Nasdaq and Russell 2000, which are composed of mid- and small-cap stocks. I will review both on Wednesday.
Now, however, we turn to the difficulties faced by two of the three major indices. The S&P 500 is in trouble, along with its partner, the broad-based NYSE Composite. Both are threatening to break and fall to the next major support — their 200-day moving averages.
Even if that was to occur, it would not necessarily trigger a bear market and might even provide for a very solid buying opportunity for longer-term investors.
However, traders should pay special attention to our trend and support lines. Breaks of support could trigger quick and dramatic declines in short- and intermediate-term positions. This could be extremely painful for those who choose to be long. In other words, if a break occurs, “longs will be wrong.”
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.
