On Thursday, the advances that were most prominent were bond yields and the dollar. After the Dow Jones Industrial Average’s record- breaking charge on Wednesday to over 21,000, the index fell 0.5% suffering its worst loss of the year. The other major indices declined even more: The S&P 500 fell 0.6%, the Nasdaq lost 0.7% and the Russell 2000 fell 1.3%.
A high point of the day was the IPO of Snap Inc (NYSE:SNAP) the parent company of Snapchat, the disappearing–message app, which was offered at $17 a share and closed at $24.48.
Facebook Inc (NASDAQ:FB) fell 0.5%, and Twitter Inc (NYSE:TWTR) was down 0.8%. Caterpillar Inc. (NYSE:CAT) disappointed its holders by falling 4.3% after reports that some of its facilities had been searched by federal agents.
Yields rose on U.S. government bonds as prices fell in anticipation of a Federal Reserve rate hike sometime this month.
At the close the Dow Jones Industrial Average was off 113 points at 21,003, the S&P 500 fell 14 points to close at 2,382, the Nasdaq lost 43, closing at 5,861, and the Russell 2000 dove to 1,396 for a loss of 18 points. The NYSE’s primary exchange traded 911 million shares with total volume of 3.8 billion shares, and the Nasdaq crossed 2 billion shares. On the Big Board, decliners outpaced advancers by 2.7-to-1, and on the Nasdaq, decliners led by 2.2-to-1. Blocks on the NYSE fell to 6,797 from 7,127 on Wednesday.
It is not unusual for a new record high on a major index, like the Dow Jones, to spike on a gap and then immediately reverse on profit-taking. This phenomenon occurred yesterday when the four-month rally that began on Election Day and covered 3,286 points (18.4%) broke both 20,000 and then 21,000. It ended with a powerful continuation gap from 20,841 to 20,957 on Wednesday.
Thursday’s profit-taking removed about a third of the rally, but its volume failed to exceed Wednesday’s volume. The first major support is at the gap’s low at 20,841, since I will assume that the gap will be filled within several days.
Conclusion: Yesterday’s reversal is not the end of the secular bull market. However, with an enormous rally now behind us, the S&P’s price-to-earnings ratio at 22X, and the Fed likely to soon raise rates, a mild retrenchment could occur. As noted the first support is at the bottom of the gap at 20,841, then the support line at 20,125, and the 50-day moving average at about 20,148.
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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