Stocks fell Monday on a broad front, but with light trading. The tech sector led the market lower with the Nasdaq down 0.9%. The Technology SPDR (ETF) (NYSEARCA:XLK) fell 1.1%.
International Business Machines Corp. (NYSE:IBM) lost 1.2%, leading the blue-chip Dow industrials lower. This left the index in the red for the year, and 3% from its record close at 18,351, made just three weeks ago.
The reason for the decline, which began just as investors entered the slowest season of the year (June through October), was the threat of an interest rate increase by the Federal Reserve. This was triggered by Friday’s better -than-expected jobs report, sparking a sell-off in bonds, and thus, higher interest rates.
Crude oil for July delivery fell 1.7% to $58.14 a barrel. Gold for August delivery rose 0.5% to $1,173.60 an ounce. The U.S. dollar fell versus the euro, which ended at $1.13. The dollar was down 1.2% against a basket of currencies.
At Monday’s close, the Dow Jones Industrial Average was down 83 points at 17,767, the S&P 500 fell 14 points to 2,079, the Nasdaq dropped 47 points to 5,022, and the Russell 2000 lost 7 points at 1,254.
The NYSE’s primary market traded 685 million shares with total volume of 2.9 billion. The Nasdaq crossed 1.7 billion shares. On the Big Board, decliners outpaced advancers by 2.4-to-1, and the on Nasdaq, decliners led by 1.8-to-1.
From the looks of this chart, the Nasdaq has serious resistance to overcome. In addition to closing very near the low of the day, the MACD issued a clear sell signal on Monday. But the conjunction of the index’s intermediate trendline and 50-day moving average should provide enough support to reverse the trend and force an attack on the high.
Monday’s low volume is a positive for the bulls in that higher-than-normal volatility often accompanies low volume.
While the Nasdaq is fading and putting pressure on its support, the Russell 2000 is in a “channel up” with initial support at its 50-day moving average at 1,251. MACD is bullish.
However, before bullish excitement overwhelms our judgment, be aware that channel up formations often break to the downside. I don’t think that will happen now unless something very bad for stocks occurs, but traders should be aware of the possibility.
Conclusion
A low-volume day like Monday brings out the bears. And they had a lot to roar about with Greece, higher interest rates and a lack of a clear strategy in the Middle East — all as we enter the most difficult time of the year for stocks.
In such an environment, investors can get some real bargains, but they should plan for them by entering limit orders at the prices they want to pay. Traders should buy on support lines and sell on resistance lines. Many will try to outguess the market, buying or selling based on the emotions of hope and fear. But the wise trader will put emotion aside and trade the charts.
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.
