Stocks fell in a broad-based decline Thursday that was led by media stocks. The tech-heavy Nasdaq was the target of much of the selling, and the index closed 1.6% lower.
Viacom, Inc. (VIAB) was crushed for a loss of 14.2% after falling short of both revenues and earnings projections. Twenty-First Century Fox Inc (FOXA) fell 6.4% after reporting better-than-expected earnings but lowering guidance. Walt Disney Co (DIS) lost 1.8% on top of Wednesday’s 9.2% plunge.
Electric car maker Tesla Motors Inc (TSLA) plummeted 8.9% after announcing its Q2 loss almost tripled from the same period last year.
PHLX Semiconductor (SOX) lost 1.8%. And the recent advance in iShares NASDAQ Biotechnology Index (ETF) (IBB) was wiped out by Thursday’s 4.3% drop.
Eight of the S&P’s 10 sectors were hit with losses. But energy and utilities, both victims of selling in Q2, were up. Utilities rose 0.5%, and energy stocks gained 1.6% despite a 1.1% decline in crude oil to $44.66 a barrel.
Gold futures rose 0.4% to $1,090.20 an ounce. The U.S. dollar fell slightly against the euro, which closed at $1.0929, and fell 0.1% against the yen.
The only significant economic report was initial jobless claims, which rose by 3,000 to 270,000 in the week ending Aug. 1, below a forecast of 271,000.
At Thursday’s close, the Dow Jones Industrial Average was down 121 points at 17,420, the S&P 500 fell 16 points to 2,084, the Nasdaq lost 84 points at 5,056, and the Russell 2000 was hit for 16 points at 1,216.
The NYSE’s primary market traded over 930 million shares with total volume of 4.3 billion. The Nasdaq crossed 2.3 billion shares. On the Big Board, decliners outpaced advancers by 1.5-to-1, and on the Nasdaq, decliners led by 2.4-to-1.
We will examine just one chart today, that of the iShares Russell 2000 Index (ETF) (IWM). Several important technical features stand out on this chart: the break of the inflection point at the 200-day moving average at $121.26, the reversal down from the 20-day moving average at $123.50, a negative MACD and, finally, the potentially devastating head-and-shoulders (SHS) break through the neckline at about $121 on higher-than-average volume.
After a break from a SHS, prices may decline for several sessions, but a rally usually takes place that jumps through the neckline. This is a deceptive move, but to the savvy trader it is a gift of short sales that should not be ignored.
Conclusion
High-tech stocks are overbought. We’ve known this for months, so they are due to fall back to more reasonable valuations. But in the absence of a more serious decline in the S&P 500 and Dow, I wouldn’t go into short selling or even selling long-term positions yet.
As noted in Wednesday’s Daily Market Outlook, an important low was made in almost all of the major indices in October. That low marks the most important inflection point in the past three years, and a penetration of that close by the Dow industrials and transports would mark the end of the bull market.
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.
