Stocks Fall as Dow 20,000 Remains out of Reach

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U.S. equities moved lower on Thursday as the Dow Jones Industrial Average 20,000 hurdle proves insurmountable for the bulls exhausted after a historic, two-month uptrend. As trading volumes quiet ahead of the long holiday weekend, familiar catalysts like hopes for President-elect Donald Trump’s fiscal stimulus plans are simply no longer generating the kind of buying excitement seen just two weeks ago.

Moreover, signs of weakness are starting to spread. Witness today’s breakdown in emerging market stocks as the surge in the U.S. dollar fuels concerns over an August 2015/January 2016-style currency chaos. Or narrowing measures of market breadth as important stocks like Apple Inc. (NASDAQ:AAPL) roll over to the downside.

In the end, the Dow Jones lost 0.1%, the S&P 500 lost 0.2%, the Nasdaq Composite lost 0.4% and the Russell 2000 ended the day down 0.9%. Treasury bonds were mostly weaker, the dollar was slightly stronger, gold lost 0.3% and oil gained 0.9%.

Consumer discretionary stocks were the laggards, down 1% as a group. Bed Bath & Beyond Inc. (NASDAQ:BBBY) fel 9.2% after reporting a top- and bottom-line miss on a surprise drop in comp-store sales. Analysts noted increased competition from online retailers and expresses skepticism about the prospects of a membership plan. Footwear purveyor Finish Line Inc (NASDAQ:FINL) fell 5.3% following multiple analyst downgrades following weak forward guidance building on a near 9% loss the previous session.

Telecom and energy stocks led the way higher with rises of 1% and 0.4%, respectively. Micron Technology, Inc. (NASDAQ:MU) gained 12.7% thanks to a quarterly earnings beat on solid forward guidance on improving supply/demand fundamentals and higher average selling prices.

On the economic front, durable goods orders fell 4.6% in November, worse than the 4.1% drop that was expected. However, dumping the volatile transports components resulted in a 0.5% gain, ahead of the 0.2% rise expected. Wages and salaries fell 0.1% and savings fell to $780.9 billion, the lowest since May 2015. And the final Q3 GDP reading came in at 3.5%, ahead of the 3.2% gain expected on an upturn in private inventories and acceleration in imports.

Stocks are shying away once again from the Dow 20k threshold as the bulls look like they may not have what it takes to beat the hurdle before the holiday weekend.

While I think a breakout is likely before the year is over, selling should intensify heading into January as seasonality turns negative and investors must contend with higher interest rates, a hawkish Fed and the uncertain future of President-elect Trump’s fiscal plans.

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Technical indicators are rolling over as well, with breadth deteriorating as many begin to book profits. A perfect example of this is the single most important stock in the market: Tech bellwether AAPL which is rolling over from double-top resistance. I have recommended the Jan $116 AAPL puts to Edge Pro subscribers.

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Emerging market stocks are also rolling over, with the EEM breaking down as shown above, as people realize that the surge in the U.S. dollar will likely result in financial market instability for these countries — similar to the volatility seen in August 2015 and January 2016. Edge subscribers are, as a result, enjoying a near 4% gain in their new Ultra Short Emerging Markets ETF (NYSEARCA:EEV) position recommended earlier this week.

Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. A two-week and four-week free trial offer has been extended to InvestorPlace readers.

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