Stocks fell Thursday, breaking a three-day winning streak as investors headed for less risky assets. Government bonds rose in price and yields fell as the S&P 500 dipped 0.2%.
What appears to be an overreaction to a failure of the S&P 500 and Dow Jones Industrial Average to punch to new highs was viewed by some analysts as a lack of confidence in the global economic outlook. This was tied to recent polls that indicated the U.K.’s referendum is going in favor of an exit from the European Union.
Energy stocks and materials were both off more than 0.7%, but it was the financials that had the greatest negative impact on the S&P 500.
Apple Inc. (AAPL), which gained 0.7% ahead of its annual Worldwide Developers Conference next week, helped stabilize the technology sector, which closed slightly in the black.
Crude oil fell 1.3% to $50.56 a barrel, while the U.S. dollar strengthened 0.3% against a basket of currencies. The losses in crude came despite the U.S. Energy Information Administration reporting earlier this week that stockpiles declined significantly last week. This was interpreted to mean that “healthy” demand for gasoline exists as we head into summer.
At Thursday’s close, the Dow Jones Industrial Average fell 20 points to 17,985, the S&P 500 lost 4 points at 2,115, the Nasdaq was off 16 points at 4,959, and the Russell 2000 dropped 8 points to 1,181.
The NYSE Composite’s primary exchange traded 885 million shares with a total volume of 3.5 billion. The Nasdaq crossed 1.7 billion shares. On both the Big Board and Nasdaq, decliners led advancers by about 2-to-1. Block trades on the NYSE Composite increased to 5,490 from 5,037 on Wednesday.
Most major index charts show a failure to break above or even into the resistance zones of mid-2015. The chart of the broad-based NYSE Composite is a good illustration of the difficulty of the index to close above the resistance line at 10,600.
The NYSE Composite had a successful test of its 200-day moving average in May, but volume and breadth have not supported a punch through last summer’s highs.
It is apparent that those who bought from January to August 2015 — from 10,600 to 11,200 — have run out of patience. After waiting for a profit for more than a year, they appear to be selling into advances to break even.
Conclusion
This week’s AAII Sentiment Survey showed bulls at 28%, bears at 28% and the number of investors who are neutral at 44%. The number of bears has been below its historical average of 30.5% for all but two of the past 15 weeks.
But the high neutral reading seems to be canceling out the low bearish readings. Remember that the AAII Sentiment Survey is a contrarian indicator, so high bearish numbers should be bullish for stocks. But the persistently high neutral reading is another indication of investors’ lack of confidence, which reduces the momentum needed for a genuine breakout.
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.
