Stocks fell on a broad front Wednesday despite what seemed to be an indication from Federal Reserve Chair Janet Yellen that short-term rates were likely to be raised at the Dec. 15-16 FOMC policy meeting.
Yellen expressed confidence in the economy, saying that although growth has been slow, it could pick up next year. She qualified her statement by again saying the Fed’s decision will be “data dependent.” And an important data point will be released Friday in the form of the U.S. jobs report. The Fed has also expressed that future rate increases will be done gradually, as the nation’s economic situation dictates.
The reason for Wednesday’s decline had little to do with the Fed, though, and much more to do with oil prices, which fell 4.6% to close below $40 a barrel. Exxon Mobil Corporation (XOM) and Chevron Corporation (CVX) dragged down the Dow Jones Industrial Average, off 2.8% and 2.4%, respectively.
It was reported that U.S. crude inventories rose for the 10th straight week, but also weighing on investors’ minds is this week’s OPEC meeting. The refusal by several Arab nations, led by Saudi Arabia, to cut production despite a supply glut has resulted in plunging oil prices.
The yield on the 10-year Treasury note rose to 2.18% from 2.15% on Tuesday. The Wall Street Journal Dollar Index, which reflects the greenback versus a basket of 16 currencies, hit a 13-year high. Gold, which is down about 10% for the year, fell 0.9% to $1,054.20 an ounce.
The most important economic report of the day was the ADP National Employment Report, which showed jobs in the nonfarm private business sector rose by 217,000 in November versus an expected increase of 185,000.
At Wednesday’s close, the Dow Jones Industrial Average was down 159 points at 17,730, the S&P 500 fell 23 points to 2,080, the Nasdaq lost 33 points at 5,123, and the Russell 2000 was down 12 points at 1,192.
The NYSE Composite’s primary exchange traded 954 million shares with total volume of 3.9 billion. The Nasdaq crossed 2 billion shares. On the Big Board, decliners outpaced advancers by 3.5-to-1, and on the Nasdaq, decliners led by 2-to-1. Block trades on the NYSE increased to 5,580 from 5,311 on Tuesday.
Wednesday’s close should cause some concern for the bulls. The broad-based S&P 500 plunged into the support zone of 2,050 to 2,080, but with higher volume than prior recent up days. The decline turned the index down and flashed a sell signal from my proprietary internal indicator, the Collins-Bollinger Reversal (CBR).
The failure of the S&P 500 to punch through the massive overhead seemingly resulted in only a smidgeon of concern from traders. The Volatility S&P 500 (VIX) was up 8.5% but is still within the low average range for the year.
Conclusion
Raymond James strategist Andrew Adams noted that 2015 is going down as “the year of the range-bound market.” He said: “The S&P 500 has been entirely contained within a fairly narrow 14.34% channel that has resulted in the sixth tightest year for the index since 1950!” And he correctly pointed out the index has yet to rise more than 3.7% from where it started the year.
Wednesday’s reversals may be the nail in the coffin for those who anticipate a breakout this year. Not only was the reversal a CBR, but it was also an outside reversal.
For those who want stats on this negative event, there are none. As I’ve said before, technical analysis is more art than science. But it doesn’t take a skilled technician to recognize this reversal.
A pullback to at least the S&P 500’s 200-day moving average at 2,065 is almost a certainty. And the chances of being stuck in another range-bound trading channel have increased, as well.
Long-term bulls may want to play it safe with an ETF like that featured in the Trade of the Day, or trade from the short side until the market settles down.
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.
