Stocks slid Wednesday after Federal Reserve Chair Janet Yellen indicated a December rate increase was a “live possibility.” She qualified her remarks, however, by stating the obvious: that the statistical evidence must support it.
The Dow Jones Industrial Average responded by falling 0.3%, and the S&P 500 lost 0.4%.
Crude oil for December delivery fell 3.3% to $46.32 a barrel on a report that crude stockpiles grew more than expected last week. The U.S. Energy Information Administration said stockpiles rose by 2.8 million barrels versus analysts’ estimate of 2.5 million.
Chevron Corporation (CVX) and Exxon Mobil Corporation (XOM) fell 1.4% and 1%, respectively. But one producer, Devon Energy Corp (DVN), rose on better-than-expected earnings and increased output guidance. (For more on DVN, see the Trade of the Day.)
Facebook Inc (FB) jumped more than 3% to a new all-time high in after-hours trading after posting strong Q3 profits and revenues.
Following Yellen’s remarks, the yield on the 10-year Treasury note rose to 2.25% from 2.23% on Tuesday as bond prices fell. The U.S. dollar gained against a basket of currencies and was up 0.9% against the euro to $1.0867.
At Wednesday’s close, the Dow Jones Industrial Average fell 51 points to 17,868, the S&P 500 dropped 7 points to 2,102, the Nasdaq lost 3 points at 5,142, and the Russell 2000 was down 1 point at 1,190.
The NYSE Composite traded total volume of over 4 billion shares and the Nasdaq crossed 2.1 billion. On the Big Board, decliners outpaced advancers by 1.5-to-1, and on the Nasdaq, decliners led by a small margin.
The Dow Jones Industrial Average turned down from its upper Bollinger Band after pushing into the overhead that began at 17,560. Initial support is at the 200-day moving average at 17,583.
The S&P 500 looks like the Dow in that it, too, fell away from the upper Bollinger Band on lower-than-average volume.
Bollinger Bands are lines drawn at fixed percentage intervals around a simple moving average. I use 2 standard deviations from a 10-day moving average for my proprietary Collins-Bollinger Reversal (CBR) indicator.
The gray line is the 10-day average, which marks the midpoint, or what is considered the “average price.”
The bands move farther away from the average during volatile periods and closer to the average in quiet times. Note how far the bands moved from the average during the Aug. 24 correction.
I have shortened the moving average to a 10-day from 20-day in order to accommodate my CBR trading system. But most technicians use a 20-day average, which should encompass 90% of market activity.
Conclusion
In practice, Bollinger Bands, like other indicators, should be used along with other tools in the technician’s kit. This is because price may hug the upper band — indicating an overbought market — for an extended time before falling. I formulated the CBR reversal system in order to overcome this problem.
No system is perfect and each is dependent upon interpretation. That is why I emphasize that technical analysis is part science and part art, but more art than science. Tomorrow, I’ll discuss how the Daily Market Outlook fits into this system.
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.
