Editor’s Note: Due to technical issues, Sam was unable to provide today’s market outlook. James Brumley is filling in for today.
An alarming revenue outlook from Apple (AAPL) and a couple of other disappointing earnings reports were enough to push stocks lower for a second day in a row, though in retrospect, the market may have been poised to tumble regardless of Wednesday’s earnings reports.
Apple put up strong results on the top and bottom lines for its fiscal Q3. Sales as well as earnings both topped estimates, and left the year-ago comparables in the dust. But between iPhone sales of only 47.5 million versus expectations for unit sales of 50 million and a revenue outlook for the current quarter that wasn’t leaps and bounds better than the current consensus, investors sent AAPL more than 4% lower.
Texas Instruments (TXN) reported a 1.8% dip in revenue, thanks to tepid chip demand, while American Express Company (AXP) saw its quarterly profit fall 3.7%.
As tough as it was for stocks, it was even tougher for commodities. Gold ventured further into new-low territory, losing 1.1% of its value to close at $1,091.40 per ounce. Crude oil fell too, closing at $49.18 per barrel, down 3.1% for the day.
Fittingly in light of earnings news and commodity action, the energy, materials, and technology sectors were the biggest losers on Wednesday, down 1.1%, 1.5%, and 1.6%, respectively. Cyclical good and financial stocks led the day with 0.3% and 0.2% advances.
As for the market indices, the S&P 500 lost 0.24% of its value to close at 2,114.15, the Nasdaq Composite’s close of 5,171.77 was 0.7% less than Tuesday’s close,the Dow Jones Industrial Average was off 0.38% to finish the session at 17,851.04, and the Russell 2000 actually finished up 0.3% to close at 1,258.35.
New York Stock Exchange decliners outpaced advancers 1.4-to-1, with down volume outpacing up volume about the same. The Nasdaq’s decliners were greater than gainers at a ratio of 1.1-to-1, though two-thirds of the Nasdaq’s volume of 2.013 billion shares was bearish. Apple was the culprit for the Nasdaq’s heavy selling volume.
On Tuesday morning, Sam pointed out that triple tops are hard to overcome. Wednesday’s second day of bearishness following the S&P 500’s third brush of the 2,134 ceiling underscores this idea. On the other hand, even without a fairly precise bump into the 2,134 mark, the market’s been in a rather realizable ebb-and-flow pattern since late last year. (Indeed, that’s been the only “trade” of any real value in months.)
To that end, we have to assume the S&P 500 is back on track to test at least one of the floors that’s been defined at some point since March. That’s 2,070 and 2,043, and unsurprisingly, the 200-day moving average line rests right in between those two levels at 2,062. While it’s tempting to try and use the 20- or 50-day moving average lines as potential floors, the fact of the matter is, neither has been a meaningful support level in a long while. The more likely floor for this selling effort is somewhere between 2,043 and 2,070.
If 2,043 breaks down as a floor, of course, look out below.
At first glance, the Dow Jones Industrial Average looks about the same, and in most regards it is. There are some subtle differences between the chart of the S&P 500 and the Dow, however, that suggests investors are shedding blue chips at a pace even stronger than the broad scale-out of large caps we’ve seen over the past few weeks. That hint is the fact the Dow Jones has just logged its second major lower high.
It’s subtle, almost to the point of being dismissible, but the Dow’s short-term moving average lines are close to crossing below the 200-day moving average line. If they both fall under that mark — and it looks like they could do so with relative ease — it would be the first time it’s happened since mid-2011.
We’re at a much higher valuation now than we were then, though, which means stocks are considerably more vulnerable now than they were then.
We’re still not past the major tipping point near 17,730 yet, but we’re close, and pointed in that direction. It’s a slightly bigger-picture framework, but worth keeping in mind from here at a point of the year that’s not known for bullishness. August and September are both, on average, bearish for the market.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
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.
