Stocks failed Wednesday in an attempt to recover the losses of Monday and Tuesday. A sharp drop in the price of oil and new worries over China extended the new year’s losing streak to three consecutive days.
The Dow Jones Industrial Average fell 1.5%, the S&P 500 was off 1.3%, and the Nasdaq fell 1.1%.
The People’s Bank of China devalued the yuan to its lowest level in five years versus the U.S. dollar, sending the Shanghai Composite up 2.3%. But North Korea’s announcement of a successful test of a hydrogen bomb spoiled any positive response to China’s action.
Crude oil fell 5.6% to $33.97 a barrel — the lowest price since December 2008 — sending energy stocks down 3.9%. Futures brokers estimate the drop in crude could cause gasoline prices to fall another 10 cents next week.
The U.S. dollar rose against a basket of oil-sensitive currencies, but fell against the euro and yen. Gold advanced 1.3% to $1,091.90 an ounce.
At Wednesday’s close, the Dow Jones Industrial Average fell 252 points to 16,907, the S&P 500 lost 26 points at 1,990, the Nasdaq fell 56 points to 4,836, and the Russell 2000 was down 16 points at 1,094.
The NYSE Composite’s primary exchange traded just over 1 billion shares with total volume of 4.3 billion. The Nasdaq crossed 2.2 billion shares. On the Big Board, decliners outpaced advancers by 3-to-1, and on the Nasdaq, decliners led by 2.4-to-1. Block trades on the NYSE increased to 5,591, up from 4,618 on Tuesday.
The SPDR S&P MidCap 400 ETF (MDY) sits on a major support line at $246, posting an intraday low of $246.04 on Wednesday.
Volume picked up on Monday and Wednesday, but was it high enough to satisfy a selling climax? As you can see on the chart, it failed to reach the levels of selling registered in late August.
Like MDY, the iShares Russell 2000 Index (ETF) (IWM) sits on a very hot line at $108, its intraday low. A break of the triple-bottom would result in a projected decline to under $100 and could pull other indices and stocks down with it. In short, a breakdown from a triple-bottom would be clear evidence that the bear has emerged.
Conclusion
I was reminded by a friend at Morgan Stanley that we have had seven reversals in primary indicators over the past week — all to the downside.
Also of note, the NYSE Bullish Percent Index is bearish and would have to move up quickly and with volume in order to negate what is a very bearish indicator.
Longs should take cover by selling stocks with high P/Es and any that have poor management and earnings disappointments. Traders should take to the short side with puts and other bearish strategies.
The bear is not yet out of his den, but this week he roared a furious roar.
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.
