The first trading session of the year opened sharply lower following steep sell-offs in European and Asian markets sparked by a negative report on China’s economy. The rout in China was so severe it triggered a new circuit-breaker system that halted trading, and the Shanghai Composite closed off 6.9%.
The Dow Jones Industrial Average was down as much as 467 points at its low, but a late recovery rally reclaimed some of the losses and the blue-chip index ended with a 276-point drubbing (-1.6%). It was the worst start to a new year since 2008. And when the Dow was at its lowest, it looked like it might be the worst first trading day of the year since 1932.
Tensions between Saudi Arabia and Iran heightened over the weekend, and that too contributed to the panic selling. Oil prices rose in response to a possible disruption of supplies from the Middle East, but crude closed the day down 0.8% at $36.76 a barrel.
Some of last year’s winners took the biggest hits: Netflix, Inc. (NFLX), up 134% in 2015, fell 3.9%; Alphabet Inc (GOOGL) dropped 2.4% after gaining 47% last year; and Facebook Inc (FB) declined 2.3% following a 34% advance in 2015.
The yield on the 10-year Treasury note fell 3 basis points to 2.24%. Gold gained 1.4% to $1,075.10 an ounce. Emerging market currencies fell against the U.S. dollar, and the euro closed down slightly against the buck at 1.083.
At Monday’s close, the Dow Jones Industrial Average dropped 276 points to 17,149, the S&P 500 lost 31 points at 2,013, the Nasdaq was off 104 point at 4,903, and the Russell 2000 fell 27 points to 1,109.
The NYSE Composite’s primary exchange traded 1.1 billion shares with total volume of 4.3 billion. The Nasdaq crossed 2.2 billion shares. On the Big Board, decliners outpaced advancers by 2.2-to-1, and on the Nasdaq, decliners led by 3.3-to-1. Also on the Big Board, block trades increased to 5,302 from Thursday’s session at 4,225.
The S&P 500 is taking on an ugly look. It failed to punch through resistance at 2,080. Following that reversal, it plunged through the support line at 2,020 on higher-than-average volume.
And on Monday, the S&P 500 tested the important (possibly game-changing) double-bottom support at 1,990 with an intraday low of 1,989.68, again on higher-than-average volume. MACD issued a new sell signal.
Conclusion
The bulls may be relieved that Monday’s close was above the critical double-bottom support at 1,990. But downside volume was very high and MACD issued a sell signal.
That signal could be negated by a high-volume up day. But all of the major indices are taking on a bearish look. And as I’ve mentioned, the Dow Theory is still in “non-confirmed status.”
Perhaps all of this is just a shift from one set of stocks to another (growth versus value). But such a shift could mean the bear is ready to take the field or that we will experience another sideways market like that of last year. Either way, the future for 2016 now looks dimmer.
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.
