The Dow Jones Industrial Average fell 0.1% on Wednesday as component Walt Disney Co (DIS) plummeted more than 9% following a less-than-stellar earnings report.
The media giant’s impact was not confined to the Dow but also resulted in a rough day for other industry giants. Time Warner Inc (TWX) reported better-then-expected earnings, but the stock was hit for an 8.5% loss. The consumer discretionary sector of the S&P 500 fell 1.1%.
Despite the loss in the Dow and S&P 500, the Nasdaq popped 0.7%. After technology, defensive sectors gained the most. Consumer staples rose 0.9%, health care gained 0.8% and utilities rose 0.3%. The big performer of the day was again biotech with iShares NASDAQ Biotechnology Index (ETF) (IBB) jumping 0.8%.
Apple Inc. (AAPL) overcame an early loss, closing up 0.7%. Motorola Solutions Inc (MSI) jumped 6.3% following surprisingly good quarterly earnings and a $1 billion investment from private-equity firm Silver Lake.
The U.S. dollar rose and the benchmark 10-year Treasury note fell in price, with the yield rising to 2.27%.
Crude oil dropped 1.3% to $45.15 a barrel. Gold lost 0.5% at $1,085.70 an ounce.
The ADP National Employment Report showed that employment in the nonfarm private business sector rose by 185,000 in July, but analysts had forecast an increase of 215,000.
At Wednesday’s close, the Dow Jones Industrial Average was off 10 points at 17,450, the S&P 500 gained 7 points at 2,100, the Nasdaq rose 34 points at 5,140, and the Russell 2000 was up 3 points at 1,232.
The NYSE’s primary market traded an above-average 900 million-plus shares with total volume of 4 billion. The Nasdaq crossed over 2 billion shares. On the Big Board, decliners were slightly ahead of advancers. On the Nasdaq, advancers led by 1.3-to-1.
The Dow Jones Industrial Average has been meandering in a narrow zone of roughly 1,500 points for almost 18 months. This is an almost unprecedented period of flat performance.
But bulls need not be discouraged for the long term since, despite the toppy look, there are also some encouraging signs. However, the positive indicators are all long term.
Downside volume has increased lately but is still only slightly above normal. And several upside reversals from my proprietary indicator, the Collins-Bollinger Reversal (CBR), have proven to be accurate. The 200-day moving average was pierced, but that was no downside clincher either.
Consider the October closing low at 16,117 for an example of what appeared to be a solid piercing of the 200-day. That penetration resulted in a quick upside reversal that turned into a huge bear trap.
And talk about bear traps — the demolition of the 200-day moving average in the Dow Jones Transportation Average in April looked like we could be headed for a disaster. Again, however, like October’s trap, the bears took a hit. And now the transports jumped through their 50-day moving average and are making a run at the 200-day.
Conclusion
I often receive the question: What would it take under Dow Theory to confirm a new bear market?
It would take a lower low by both indices in order to confirm the bear’s roar. And those numbers are clear from our two Dow charts. Both indices must close under the October closing lows in order to turn the market into a long-term downtrend.
The 200-day moving average has nothing to do with Dow Theory’s definition, and neither does any percentage decline. I read again today of a prominent technician who said that a bear market is confirmed by a 20% decline. Not according to Charles Dow. He would tell us that the bull is still in the meadow.
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.
