Dow 500 Points From a Bear Market Signal

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Stocks were hit hard Thursday following China’s largest downward adjustment to the yuan since August. The country’s stock market fell more than 7%, triggering a circuit breaker that halted trading after just 30 minutes. This resulted in the shortest trading day in China’s history and was the second time this week the mechanism was triggered.

The crash in China’s markets had a broad global impact. The Dow Jones Industrial Average fell 2.3%, the S&P 500 was off 2.4%, and the Nasdaq lost 3%, its worst day in 16 years. Japan’s Nikkei, Australia’s S&P/ASX 200, Hong Kong’s Hang Seng Index and the Stoxx Europe 600 each fell over 2%.

Commodities also took a hit with oil off 2.1% at $33.27 a barrel. Gold advanced 1.4% to $1,107.70 an ounce and bond prices rose as investors scurried to safety. The yield on the 10-year Treasury note dropped to 2.15% from 2.18% on Wednesday.

The Chinese yuan fell to its lowest levels versus the U.S. dollar since 2011, but the euro gained, closing at $1.092.

At Thursday’s close, the Dow Jones Industrial Average fell 392 points to 16,514, the S&P 500 was down 47 points at 1,943, the Nasdaq lost 146 points at 4,689, and the Russell 2000 dropped 30 points to 1,065.

The NYSE Composite’s primary exchange traded 1.2 billion shares with total volume of 5 billion. The Nasdaq crossed 2.5 billion shares. On the Big Board, decliners outpaced advancers by 6.2-to-1, and on the Nasdaq, decliners led by 6.1-to-1. Declining volume surpassed advancing volume by 8.6-to-1, and block trades increased to 6,496 from 5,591 on Wednesday.

Dow Jones Industrial Average Chart
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Chart Key

The Dow Jones Industrial Average plunged through support at 16,680 with hardly a hesitation. The nearly 400-point decline put the index into its final support zone at 16,000 to 16,680. A failure to hold here would trigger a Dow Theory bear market signal.

The “W” of August/September may hold; however, note the relatively light downside volume.

Dow Jones Transportation Average Chart
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The Dow Jones Transportation Average has fallen into uncharted territory. Note the strong sell signal from my proprietary indicator, the Collins-Bollinger Reversal (CBR), and relatively light downside volume, along with a new MACD sell signal.

Conclusion

Everything looks bearish, and yet the public has not shown signs of panic selling. Declining volume at 8.6-to-1 is higher than normal, but the charts show mediocre volume and, thus, the lack of a true panic that could lead to a solid bottom.

In my opinion, all that is needed to confirm a bear market signal is a close under 16,000.

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.


Article printed from InvestorPlace Media, https://investorplace.com/2016/01/daily-market-outlook-dow-500-points-from-a-bear-market-signal/.

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