After starting in positive territory on Friday, stocks continued their decline with the major indices each falling 1% or more. The Dow Jones Industrial Average was down over 1,000 points for the week, making it the worst five-day opening to a year in the history of the index.
For the week, the Dow fell 6.2%, the S&P 500 was off 6%, the Nasdaq dropped 7.3% and the Russell 2000 lost 7.9%.
Much of the selling was due to concerns over China and its weakening economy. Each day brought a new devaluation of the yuan, with the currency being driven to five-year lows against the U.S. dollar. A report from Reuters that the People’s Bank of China may devalue the yuan by as much as 15% against the dollar fanned fears of global deflation. And losses in the Chinese stock market triggered a newly implemented circuit-breaker system that halted trading and contributed to panic selling.
In the United States, a better-than-expected jobs report went largely unnoticed. Payrolls increased by 292,000 in December versus an estimated 210,000.
FactSet said the S&P 500 is trading above its 10-year average P/E of 15.7 at 17.4 times earnings from the past 12 months.
Oil fell to its lowest level since 2004, down 0.3% Friday to $33.16 a barrel. Gold declined 0.9% to $1,097.90 an ounce.
At Friday’s close, the Dow Jones Industrial Average fell 168 points to 16,346, the S&P 500 lost 21 points at 1,922, the Nasdaq was down 46 points at 4,644, and the Russell 2000 fell 18 points to 1,046.
The NYSE Composite’s primary exchange traded 1.1 billion shares with total volume of 4.6 billion. The Nasdaq crossed 2.3 billion shares. On the Big Board, decliners outpaced advancers by 2.2-to-1, and on the Nasdaq, decliners led by 2.5-to-1. Block trades fell to 6,098 from 6,476 on Thursday.
As one writer put it, “The DJIA has fallen off a cliff.” Indeed it has, as all 30 of its stocks closed in the red for the week.
The index sliced through major support and all that remains to confirm a bear market is a close below the fuzzy bottom at around 16,000.
Above-average volume has accompanied the decline, and since the Dow Jones Transportation Average already made a new low, it is now up to the industrials to “make or break” the major support line.
MACD is oversold but could become even more oversold.
Like the Dow, the S&P 500 plunged to a broad support zone. With above-average selling and a negative but oversold MACD, it appears a test of the support line around 1,880 is about to occur.
Conclusion
Technically stocks are oversold, and although they could become more oversold, I wouldn’t chase the short side at this point. Instead, sell into any rallies with the thought that rallies in bear markets can be violent enough to suck in the unwary optimist.
With a close under the 1,880 line on the S&P 500 only 42 points away and selling volume just slightly above average (a high-volume selling climax has been illusive), I assume new lows are in the near future.
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.
