Stocks struggled Tuesday and ended the session lower. Selling in the health care sector and a revenue miss by International Business Machines Corp. (IBM) put pressure on the broader market.
Big Blue reported its 14th straight quarter of lower sales and issued a weak earnings outlook. Shares fell 5.8% and put pressure on the technology group, which closed down 0.3%.
The PHLX Semiconductor fell 0.2% led by Micron Technology, Inc. (MU), down 10.8%, and Intel Corporation (INTC), off 0.5%.
Health care stocks declined on continued scrutiny of biotech drug pricing. The iShares NASDAQ Biotechnology Index (ETF) (IBB) dropped 3.2%, and the Health Care SPDR (ETF) (XLV) lost 1.6%. Merck & Co., Inc. (MRK) fell 2% and Pfizer Inc. (PFE) was off 1.5%.
The Shanghai Composite gained 1.1% on hopes of further stimulus from the Chinese government to spur growth. On Monday, it was reported China’s economy grew 6.9% in Q3, its slowest rate since 2009. The report actually came in better than expected, but its accuracy was questioned by analysts familiar with China’s economy.
Housing starts rose 6.5% in September versus August. It was the first gain in three months and beat expectations.
Gold rose 0.4% to $1,178 an ounce. Crude oil was up 0.7% to $45.55 a barrel. The euro gained 0.1% against the U.S. dollar, ending at $1.1348.
At Tuesday’s close, the Dow Jones Industrial Average fell 13 points to 17,217, the S&P 500 was down 3 points at 2,031, the Nasdaq lost 25 points at 4,881, and the Russell 2000 was down 1 point at 1,163.
The NYSE Composite’s primary market traded less than 800 million shares with total volume of 3.3 billion. The Nasdaq crossed 1.7 billion shares. On the Big Board, advancers outpaced decliners by 1.6-to-1, and on the Nasdaq, decliners led by a slight margin.
The Nasdaq, like the other major indices, has advanced to just below major resistance. That resistance held Tuesday as the Nasdaq turned down from its 200-day moving average at 4,921.
MACD is arching down, and the rally appears to be losing momentum, as illustrated by lower volume.
Conclusion
A market recovery is under way, but it is far from certain that it will succeed in achieving new highs.
Each major index is approaching potentially high levels of selling. While we must acknowledge the strong likelihood that the August lows established a classic “correction,” there is also the possibility of a minimum 50% Fibonacci retracement in the Nasdaq, which would take the index down to about 4,710.
In addition to the technical difficulties, the market still faces global economic weakness and an uncertain Federal Reserve that has been doing a poor job of communicating its resolve regarding interest rates.
My overall outlook may change if the indices successfully plow through the overhead that is just a fraction above Tuesday’s close. Until then, I recommend a cautious approach with the objective of accumulating cash while awaiting a better buying opportunity.
Short selling at current levels with stop-losses is also an appropriate trading strategy, along with the purchase of put options and call writing.
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.
