Tuesday’s big financial news was that the stock market didn’t fall — much that is. After an early morning bounce, the Dow Jones Industrial Average gave back most of the gains, ending up 0.3%. The S&P 500 closed up 0.1%, while the mid-cap Nasdaq and small-cap Russell 2000 both lost 0.6%.
Health care stocks rallied throughout the day, gaining 0.9% despite another clobbering of the biotechs. The iShares NASDAQ Biotechnology Index (ETF) (IBB) fell 0.4%, bringing its month-to-date decline to 15.4%.
Europe was again hit with losses. The Stoxx Europe 600 declined 0.7% and Germany’s DAX dropped 0.4%. The Volkswagen AG (ADR) (VLKAY) scandal and problems at Glencore International PLC (GLNCY) were blamed for Europeans’ concerns. While VW continued its descent Tuesday, Glencore rallied.
Technology stocks fell 0.4%, led lower by Apple Inc. (AAPL), which was down 3%.
Expectations of a drop in U.S. crude output helped pushed oil prices up 1.7% to $45.23 a barrel. Crude prices have traded in a narrow range of just $6 this month.
Gold for December delivery fell 0.4% to $1,127 an ounce, while silver was down slightly to $14.59 an ounce. (See the Trade of the Day for a play on silver miners that could return 15% in two months.)
The Conference Board’s Consumer Confidence Index increased to 103 in September, where a drop to 97 was expected. The S&P/Case-Shiller 20-City Home Price Index for July rose 5%, in line with expectations.
At Tuesday’s close, the Dow Jones Industrial Average rose 47 points to 16,049, the S&P 500 gained 2 points at 1,884, the Nasdaq fell 27 points at 4,517, and the Russell 2000 was down 7 points at 1,084.
The NYSE Composite’s primary market traded just over 1 billion shares with total volume of 4.1 billion shares. The Nasdaq crossed 2.3 billion shares. On the Big Board, decliners outpaced advancers by 1.3-to-1, and on the Nasdaq, decliners led by 1.7-to-1.
The plunge from an ascending wedge puts the major indices into a death spiral. The next support for SPDR S&P 500 ETF Trust (SPY) is at about $186, just 2 points from Tuesday’s close. Resistance is at the February reversal low at about $198.
Like the SPY, the iShares Russell 2000 Index (ETF) (IWM) is in free-fall. Resistance to rallies is at $114.50, and support is near $104.50, about 3 points below Tuesday’s close. Selling is even heavier in IWM than in SPY.
Conclusion
Despite the bearish charts, after a sharp decline we should expect an almost equally sharp rally. This is because rallies in bear markets are usually accelerated by short-covering. When short sellers head for the door, there is little room for everyone to exit.
Thus, at this time, only sell or sell short into rallies. Don’t get caught in a short-covering panic.
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.
