On Tuesday, stocks were hammered for the second time in three sessions as the S&P 500 registered its third straight day of extreme volatility — and this after two months of trading in a narrow channel without a daily move of more than 1%.
The benchmark index fell 1.5%, and the Dow industrials declined 1.4%.
Uncertainty over global central banks’ policies appeared to be at the core of the decline. Instead of charting a firm course of action, our Federal Reserve governors appear to lack direction in the face of high stock price-to-earnings valuations, slow economic growth and potentially weak corporate earnings.
Also on Tuesday, the 10-year Treasury note’s yield rose to 1.73% vs 1.67% on Monday.
Another factor that led to yesterday’s decline was the drop of 3% in crude oil prices. WTI fell to $44.90 per barrel. following a report from the International Energy Agency that demand for energy products in Asia was expected to fall.
Gold, a traditionally defensive investment, rose 0.1% to $1,324.50 per ounce.
At the close the Dow Jones Industrial Average fell 258 points at 18,067, the S&P 500 lost 32 points at 2,127, the Nasdaq dropped 57 to close at 5,155 and the Russell 2000 closed at 1,212, off 24 points. The NYSE primary exchange traded 1 million shares with total volume of 4.1 million shares, and Nasdaq crossed 2.1 billion shares. On the Big Board decliners outpaced advancers by 8.2-to-1, and on Nasdaq decliners led by 4.4-to-1. Blocks on the NYSE increased to 6,120 vs. 5,651 on Monday.
On Monday I examined the DJ Transportation Average and concluded that it was holding within the trading band established in June. And it is still well within the band. “A one day scare signifies little.”
And its companion index, the DJIA, despite two of the last three days down, has held above the conjunction of the intermediate support line and the support line at 17,950. However, a close below this support would be a significant change to sideways from up.
The ‘500’ appears in slightly better shape than the Dow since it is slightly farther from the next significant support. Both have held above Tuesday’s CBR buy signal.
Conclusion: Watch for volume to increase, since I believe that the volume numbers will regain the importance formerly ascribed to them.
Even if the immediate support line fails to hold, there is massive support under all of the indices. The bull is still in the pasture, but he requires some encouragement to overcome the sellers. Hopefully Fed members will remain quiet through the FOMC meeting next week.
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.
