The Nasdaq Is Taking a Short-Term Hit

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On Thursday, investors sold technology stocks in favor of financials, a trend that began following the election of Donald Trump.

That trend continues since technology companies have much of their components and assembly done in Asia, where labor prices are low, cutting into U.S. workers’ income. Thus stricter trade policies are being considered.

The financial sector should benefit from a decrease in taxes and regulation, which should boost growth and inflation. Those factors, plus the anticipation of higher interest rates and a more profitable spread between what banks pay on deposits and what they charge on loans, favor the Dow Jones Industrial Average since it is weighted to the financial sector.

But this puts pressure on bond prices, and they, along with high-dividend paying stocks, fell again yesterday, And the technology sector, which accounts for almost 21% of the S&P 500, closed in negative territory for the second consecutive session — pushed lower by the above concerns and a report that Apple Inc. (NASDAQ:AAPL) was experiencing a reduction in orders of its iPhone 7.

At the close, the Dow Jones Industrial Average gained 68 points at 19,192, the S&P 500 fell 8 points to 2,191, the Nasdaq lost 73 points, closing at 5,251, and the Russell 2000 closed at 1,314, down 9 points. The NYSE’s primary exchange traded 1.2 billion shares with total volume of over 5 billion shares, and the Nasdaq crossed 2.2 billion shares. On the Big Board, decliners outpaced advancers by 1.6-to-1, and on the Nasdaq, decliners led by 1.6-to-1. Blocks on the NYSE increased to 8,296 from 7,098 on Wednesday.

Nasdaq falls thru spt line & 50-day ma
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NASDAQ Taking a Short-Term Hit

Yesterday the DJIA (not shown) jumped to a new closing high at 19,192, while the technology-heavy Nasdaq reversed from a new high made last week. The reversal plunged the Nasdaq through its first support line at 5,311 and, most significant, it closed below its 50-day moving average at 5,264. The next support line for the Nasdaq is at 5,160.

Conclusion: The reason for the strength of the Dow is OPEC’s agreement to cap production and the positive impact on an oil-heavy Dow. As for the Nasdaq: it is technology-heavy, and the decline in technology stocks is explained above.

Technically, there is a divergence between the Dow and Nasdaq with the first jumping to a new closing high and the second plunging through near-term support. However, this is all in the realm of near-term trading, and the overall pressure exerted by the bulls will eventually overcome a temporary adjustment as the energy stocks become so expensive that profit-taking will drive funds into the techs again.

In a powerful bull market this is known as “group rotation,” and as long as one index has little negative impact on the primary trend, the bulls will win again.

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/2016/12/nasdaq-short-term-hit/.

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