Cash Is Now King

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Stocks tumbled Friday as worries over the lack of global growth again plagued the U.S. markets. The Dow Jones Industrial Average fell 1.7%, and the S&P 500 lost 1.6% with all 10 sectors registering a decline.

China, the second largest global economy, may have had an impact on the Federal Reserve’s decision to leave interest rates unchanged at last week’s policy meeting. There has been no evidence of communications between the Fed and China, but a Wall Street Journal report of a request from the Royal Bank of Scotland to leave rates unchanged surfaced last week, citing a weakening global outlook.

The delay in a rate hike created uncertainty over when the Fed will start a cycle of tightening. However, Fed Chair Janet Yellen maintained in a press conference the likelihood that rates would increase before year end.

Financial stocks sold off on Friday. Two of the Dow’s biggest decliners were Goldman Sachs Group Inc (GS), off 3%, and JPMorgan Chase & Co. (JPM), down 2.6%.

The yield on the 10-year Treasury note fell to a two-week low of 2.13% on Friday.

Crude oil futures declined 4.7% to $44.68 a barrel, and the energy dropped 2.6%. Investors seemed to rush into the safer haven of gold. The metal rose 1.9% to $1,137.80 an ounce.

At Friday’s close, the Dow Jones Industrial Average fell 290 points to 16,385, the S&P 500 lost 32 points at 1,958, the Nasdaq dropped 67 points to 4,827, and the Russell 2000 was down 17 points at 1,163.

The NYSE Composite’s primary exchange traded 2.5 billion shares with total volume of 5.7 billion shares. The Nasdaq crossed 3 billion shares. On the Big Board, decliners outpaced advancers by 2.3-to-1, and on the Nasdaq, decliners led by 1.8-to-1.

For the week, the Dow fell 0.3%, the S&P 500 lost 0.2%, the Nasdaq rose 0.1% and the Russell 2000 gained 0.5%.

MDY Chart
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Chart Key

SPDR S&P MidCap 400 ETF (MDY) gapped down from a bearish ascending wedge. This follows the same pattern we saw last week in the Dow Jones Industrial Average and S&P 500.

NYSE Composite Chart
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The broad market NYSE Composite also broke down, confirming a general break lower by all indices.

Conclusion

With all indices showing a bearish pattern and with an underlying weak MACD, there is very little to hold back the bear. However, in order to confirm a Dow Theory bear market, the August closing lows of the industrials (15,666.44) and the transports (7,466.97) must be broken. Since those numbers are significantly lower and the near and intermediate trends are down, I would caution against taking all but the strongest new positions. Cash is now king.

On Friday, I discussed sell signals from my proprietary indicator, the Collins-Bollinger Reversal (CBR). Some readers asked about the statistical results of this indicator. I have not studied it because no one indicator should take precedence over all others. Thus, there is no statistical evidence for the predictive results of things such as moving average crosses or chart formations like triangles or head-and-shoulders. Technical analysis is more art than science. The experience and judgment of the technician can’t be quantified, but like “good” and “bad,” I know it when I see it.

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.


Article printed from InvestorPlace Media, https://investorplace.com/2015/09/daily-market-outlook-cash-is-now-king/.

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