The Dow Jones Industrial Average Is Focused on the Financials

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On Thursday, the stock market suffered a mild decline, but the morning was dominated by selling of the shares of banks. Earnings of the largest banks will be reported today, and investors, many of whom bought at lower prices, took profits in advance of the reports.

The Dow Jones Industrial Average fell 0.3%, the S&P 500 was down 0.2%, the Nasdaq fell 0.3% and the Russell 2000 fell 0.9%. However, the major losses were sustained by the big banks and financial institutions: PNC financial Services Group Inc (NYSE:PNC) fell 2.4%, Citigroup Inc (NYSE:C) lost 1.2%, and J.P. Morgan Chase & Co. (NYSE:JPM) fell 1%. However, most analysts, reported by The Wall Street Journal, expect the banks to register gains in Q4 earnings.

Pharmaceuticals continued the track lower following the comments by President-elect Donald Trump that the industry was “getting away with murder” and called for “new bidding procedures.” But despite his comments, the biotechnology stocks were hunted for bargains following a decline of 3% on Wednesday. The iShares Nasdaq Biotechnology Index (ETF) (NASDAQ:IBB) gained 0.4%.

Crude oil (WTI) gained 1.5% at $53.01 per barrel and gold continued to rise, up 0.3% at $1,198.90.

At the close, the Dow Jones Industrial Average fell 63 points to 19,891, the S&P 500 fell 5 to 2,270, the Nasdaq lost 16 points to close at 5,547, and the Russell 2000 fell 12 at 1,361. The NYSE’s primary exchange traded 799 million shares with total volume of 3.5 billion shares, and the Nasdaq crossed 1.8 billion shares. On the Big Board, decliners outpaced advancers by 1.5-to-1, and on the Nasdaq, decliners led by 2-to-1. Blocks on the NYSE fell to 6,154 vs. 7,460 on Wednesday.

GLD overbought
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The Dow Jones Industrial Average Is Watching the Financials

The SPDR Gold Trust (ETF) (NYSEARCA:GLD) is a commodity exchange-traded fund that approximately tracks the price trend of spot gold bullion. When stock markets become overbought, GLD often forecasts that condition. But when there is a “risk-on” condition in equities, GLD declines, as it did from September to mid-December. Ever since the President-elect’s last speech, which some are calling the “Trump-Dump,” buyers have been reluctant to buy some sectors.

Conclusion: Note that despite the near-term uptrend in gold, yesterday GLD closed near the low of the day. This signifies that the overbought condition, as shown by the chart’s MACD, is near an end. Volume, though positive, never exceeded the average line (black) in January.

If the financials report better-than-expected earnings today, I expect to see more selling of gold and perhaps even a break of the Dow’s 20,000 line.

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.


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