What Will it Take to Confirm a Bear Market?

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Stocks rose slightly on Thursday. The broad-based S&P 500 and Nasdaq each gained 0.2%, but the blue-chip Dow Jones Industrial Average underperformed, falling 0.1%.

Headwinds for stocks included a cut by JPMorgan Chase & Co. (JPM) to the bank’s estimate for Q3 U.S. growth to 1.5% from 2%. Further, there is little sign the U.S. dollar will weaken in the third quarter, and that would likely continue to weigh on profits for multinational companies. Finally, a weaker-than-expected manufacturing survey added to investor malaise.

All of the S&P’s 10 sectors showed gains except for utilities and industrials. Materials led with a 1.1% advance, followed by health care, up 1%, and consumer discretionary, up 0.7%.

Crude oil fell 0.8% to $44.74 a barrel .Gold declined 0.1% to close at $1,114.20 an ounce, and silver fell 0.3% to $14.49 an ounce.

Weekly initial jobless claims rose to 277,000 versus an expected increase to 270,000.

At Thursday’s close, the Dow Jones Industrial Average was down 13 points at 16,272, the S&P 500 rose 4 points to 1,924, the Nasdaq advanced 7 points at 4,627, and the Russell 2000 declined 3 points to 1,098.

The NYSE Composite’s primary exchange traded over 950 million shares with total volume of 4 billion. The Nasdaq crossed 2.1 billion shares. On the Big Board, there were slightly more decliners than advancers, and on the Nasdaq, decliners led by 1.4-to-1.

Dow Jones Industrial Average Chart
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Dow Jones Transportation Average Chart
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Chart Key

Readers have been asking me to define in chart terms what would constitute a “bear market.”

On Aug. 25, both key Dow indices broke to new closing lows: the Dow Jones Industrial Average at 15,666.44 and the Dow Jones Transportation Average at 7,466.97. Both indices had “reflex rallies,” but neither broke to a new intermediate high needed to establish a trend reversal.

That failure to reverse sets up the perfect case for a Dow reversal. However, in order for that to occur, both indices must close under their Aug. 25 lows. If that occurs, they will have established a lower closing low and a failed closing high — in other words, a newly established downtrend and a Dow Theory bear market.

Conclusion

The bear market has not yet officially been declared, but the background work has been established. I believe it is only a matter of time before new closing lows will establish the bear market’s reality.

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.


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