Extra Caution Warranted Following Breakdown

Advertisement

The name of the game Thursday was “safety” as investors flocked to bonds and gold and fled stocks. The Dow Jones Industrial Average fell 1.6%, the S&P 500 lost 1.2% and the Nasdaq was off 0.4%.

Contributing to the broader market decline was more selling in crude oil and bank stocks, and a plunge in Asian markets.

WTI oil fell to the lowest price in 13 years, down 4.5% at $26.21 a barrel. Insurance companies dragged the U.S. financial sector down, but bank stocks also fell globally with Europe’s bank sector losing 6.3%.

Additionally, Federal Reserve Chair Janet Yellen’s Congressional testimony spooked the market when she admitted that the Fed governors had openly discussed negative interest rates and their advantages if needed. The practice was introduced in Europe and encourages banks to lend money rather than keep it with no risk.

Boeing Co (BA) fell 6.8% as a result of an SEC investigation into its accounting methods.

The technology sector benefited from a solid earnings report from Cisco Systems, Inc. (CSCO), whose stock jumped 9.6%.

Gold leapt 4.5% to $1,247.90 an ounce. And the yield on the benchmark 10-year Treasury note fell to 1.63% from 1.71% on Wednesday as bond prices rose.

At Thursday’s close, the Dow Jones Industrial Average fell 255 points to 15,660, the S&P 500 lost 23 points at 1,829, the Nasdaq was down 17 points at 4,267 and the Russell 2000 lost 10 points at 954.

The NYSE Composite’s primary exchange traded 1.1 billion shares with total volume of 5.4 billion. The Nasdaq crossed 2.8 billion shares. On the Big Board, decliners outpaced advancers by 9.4-to-1, and on the Nasdaq, decliners led by 2.3-to-1. On the NYSE, block trades increased to 9,367, up from 9,176 on Wednesday.

Nasdaq Chart
Click to Enlarge

Chart Key

There is little doubt about the lack of support following Thursday’s breakdown on the Nasdaq. Note the plunge from 4,905, the death cross and increasing downside volume.

The breakdown from the formation at 4,517 is also worth noting since recovery rallies will probably halt close to that line.

Dow Jones Industrial Average Chart
Click to Enlarge

The Dow Jones Industrial Average, in some respects, shows less downside momentum than the Nasdaq. Even though the August closing low at 15,666, an inflection point, was penetrated, it appeared “pushed” by high-volume sellers.

Conclusion

Whether bear or bull, we have no choice but to be very cautious. Selling into rallies is standard, and only trading from the short side — except for stocks that are grossly oversold — will provide traders with more consistent results than going long.

If downside follow-through occurs today, I’ll provide support levels for the major indices next week.

Have a great Presidents Day.

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/2016/02/daily-market-outlook-extra-caution-warranted-following-breakdown/.

©2024 InvestorPlace Media, LLC