On Monday, stocks fell on modest profit-taking, but the fall was enough to break the Russell 2000’s longest run of gains in over 20 years.
Through Friday, the Russell had risen for 15 consecutive sessions, beginning before the presidential election and continuing after it. The gains were attributed to the purchase of U.S.-based companies, since the president-elect has indicated that he will introduce policies that will improve growth and lower corporate taxes, with less cumbersome oversight. This approach should benefit both large and small corporations, but benefit the smaller, domestic companies more. The Russell 2000 is composed of firms that could benefit most from such an approach.
The other three major indices also fell, with the Nasdaq losing the most, down 0.6%. The S&P 500 fell 0.5%, and the Dow Jones Industrial Average lost just 0.3%. The S&P 500 fell the most due to seven of its eleven sectors ending in the red, led by the financials, off 1.4%, and energy, down 1.3%.
Energy stocks fell despite an increase in WTI crude oil, which gained 2.5% to $47.11 per barrel, up $1.15.
At the close, the Dow Jones Industrial Average fell 54 points, closing at 19,098, the S&P 500 lost 12 at 2,202, the Nasdaq closed at 5,369, off 30, and the Russell 2000 fell 17 to 1,330. The NYSE’s primary market traded 870 million shares with total volume of 3.5 billion shares traded. On the Big Board, decliners outpaced advancers by 1.9-to-1, and on the Nasdaq, decliners led by 2.4-to-1. Blocks on the NYSE increased to 5,135 from 4,815 on Thursday’s full session.
All of the major indices have broken to new highs. The most-watched index, the Dow Jones Industrial Average, broke to a new all-time high last Wednesday at 19,152. The major breakout occurred on Nov. 9 and 10 and was accompanied by very high volume. Yesterday’s retracement was slight with below-average volume, and while the MACD indicator is slightly overbought, it is fading — a positive sign.
Another positive is that the index has broken into new highs with no resistance above 19,152.
High volume also accompanied the breakout on the chart of the transports, and like the DJIA, its overbought reading of the MACD indicator is fading. But the transports never made it to the November 2014 high of 9,310, and that could pose a problem since sellers from Friday’s high at 9,044, and the 2014 high could still pounce.
Conclusion: Yesterday, all of the major indices fell on lower volume, a positive sign. But, if high-volume selling occurs, a deeper adjustment could follow. The good news, however, is that the bull market has been confirmed, and what appears to be solid, natural group rotation is occurring. Barring any massive violations, yesterday’s minor round of profit-taking will quickly lead to another round of new highs.
Long-term investors should hold good-quality stocks. The favored sectors continue to be retail, coal, construction, mining, food & restaurants, transportation and biotechnology.
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.
