The S&P 500 Is Hesitating Ahead of Trump’s Inauguration

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On Tuesday, stocks faltered, pulled modestly lower by profit-taking in the financial sector. Stocks, the dollar and bonds fell in unison as investors became cautious over the election of Donald Trump.

During the last several weeks, a bubble has expanded in stocks, bonds and the dollar. Thus, a minor contraction could occur at any time. Financial stocks are expected to be a chief beneficiary of a new tax bill, and so they have jumped since the election.

Yesterday some came back to earth: The financial sector fell 2.3% and Morgan Stanley (NYSE:MS), which had the best fourth-quarter results, fell 3.8% yesterday, and Goldman Sachs Group Inc (NYSE:GS) dropped 3.5%.

At the close, the Dow Jones Industrial Average fell 59 points to close at 19,827, the S&P 500 lost 7 at 2,268, the Nasdaq fell 35 points to 5,539, and the Russell 2000 lost 20, closing at 1,352. The NYSE’s primary exchange traded 868 million shares with total volume of 3.5 billion shares. The Nasdaq crossed 1.7 billion shares. On the Big Board, decliners led advancers by 1.2-to-1, and decliners outpaced advancers on the Nasdaq by 2.4-to-1. Blocks on the NYSE increased to 6,737 from 5,932 on Friday.

S&P 500 consolidatesClick to Enlarge 

The S&P 500 Is Hesitating Ahead of Trump's Inauguration

 

The 500 continues to consolidate its November/December gains within what appears to be a bullish “V” formation. The important feature of the “V” is not its shape but its support line at 2,250, which has become an “inflection point.” Volume, both buying and selling, has retreated to under the average line (black), and MACD is slightly oversold.

Conclusion: The bullish trend is intact but with a hesitation — perhaps until President Trump reveals his economic plan, or at least that’s what the pundits are saying. Despite yesterday’s hiccup, the small- and mid-caps are still in the lead with the SPDR S&P MidCap 400 ETF (NYSEARCA:MDY) looking slightly better than the iShares Russell 2000 Index (ETF) (NYSEARCA:IWM).

My guess is that buyers will hesitate until after the new president takes office before bargain hunting the financials and other bottom-dwellers. Meanwhile, traders could take advantage of the short-term support and resistance lines that appear on our charts. Both longs and shorts love markets like this one.

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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